Interest Rate Pass-Through: Mortgage Rates, Household Consumption, and Voluntary Deleveraging

Marco Di Maggio, Amir Kermani, Benjamin Keys, Tomasz Piskorski, Rodney Ramcharan, Amit Seru and Vincent Yao

American Economic Review, 2017, vol. 107, issue 11, 3550-88

Abstract: Exploiting variation in the timing of resets of adjustable-rate mortgages (ARMs), we find that a sizable decline in mortgage payments (up to 50 percent) induces a significant increase in car purchases (up to 35 percent). This effect is attenuated by voluntary deleveraging. Borrowers with lower incomes and housing wealth have significantly higher marginal propensity to consume. Areas with a larger share of ARMs were more responsive to lower interest rates and saw a relative decline in defaults and an increase in house prices, car purchases, and employment. Household balance sheets and mortgage contract rigidity are important for monetary policy pass-through.

JEL-codes: D12 D14 E43 E52 G21 R31 (search for similar items in EconPapers)
Date: 2017
Note: DOI: 10.1257/aer.20141313
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