Mortgage Debt and the Consumption Response to Fiscal Transfers

Ross Batzer (ross.batzer@fhfa.gov)

No 23-07, FHFA Staff Working Papers from Federal Housing Finance Agency

Abstract: This paper studies how mortgage debt shapes the consumption response to fiscal transfers using an incomplete markets model with housing and defaultable longterm debt. The model is estimated to match the share of households in the data whose spending is constrained by low liquidity. Among homeowners, the model predicts those with mortgage debt have an average response to transfers six times larger than those without debt. Spending responses are found to be poorly correlated with earnings. Unlike a standard model without mortgage debt, the model with mortgages predicts restricting transfers based on income may substantially reduce their efficacy in increasing aggregate spending.

Keywords: mortgages; macro-policy; stimulus; marginal propensity to consume (search for similar items in EconPapers)
JEL-codes: E21 G21 G51 H31 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2023-12
New Economics Papers: this item is included in nep-ban, nep-dge and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:hfa:wpaper:23-07

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