Regional Redistribution through the US Mortgage Market
Erik Hurst (),
Amit Seru and
Joseph Vavra ()
American Economic Review, 2016, vol. 106, issue 10, 2982-3028
Regional shocks are an important feature of the US economy. Households' ability to self-insure against these shocks depends on how they affect local interest rates. In the United States, most borrowing occurs through the mortgage market and is influenced by the presence of government-sponsored enterprises (GSE). We establish that despite large regional variation in predictable default risk, GSE mortgage rates for otherwise identical loans do not vary spatially. In contrast, the private market does set interest rates which vary with local risk. We use a spatial model of collateralized borrowing to show that the national interest rate policy substantially affects welfare by redistributing resources across regions.
JEL-codes: E32 E43 G21 G28 L32 R11 R31 (search for similar items in EconPapers)
Note: DOI: 10.1257/aer.20151052
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Working Paper: Regional Redistribution Through the U.S. Mortgage Market (2015)
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