Sources of Inaction in Household Finance: Evidence from the Danish Mortgage Market

Steffen Andersen, John Campbell, Kasper Meisner Nielsen and Tarun Ramadorai

American Economic Review, 2020, vol. 110, issue 10, 3184-3230

Abstract: We build an empirical model to attribute delays in mortgage refinancing to psychological costs inhibiting refinancing until incentives are sufficiently strong; and behavior, potentially attributable to information-gathering costs, lowering the probability of household refinancing per unit time at any incentive. We estimate the model on administrative panel data from Denmark, where mortgage refinancing without cash-out is unconstrained. Middle-aged and wealthy households act as if they have high psychological refinancing costs; but older, poorer, and less-educated households refinance with lower probability irrespective of incentives, thereby achieving lower savings. We use the model to understand frictions in the mortgage channel of monetary policy transmission.

JEL-codes: E52 G21 G51 R31 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (63)

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Working Paper: Sources of Inaction in Household Finance: Evidence from the Danish Mortgage Market (2015)
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DOI: 10.1257/aer.20180865

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