Mortgage payments and household consumption in urban China
Yifan Chen and
Jim Huangnan Shen ()
Economic Modelling, 2020, vol. 93, issue C, 100-111
By exploiting variation both in mortgage payoffs and mortgage interest-rate resets, we find that a decline in mortgage payments induces a significant increase in nondurable goods spending, even when households have substantial amounts of liquidity. Following mortgage payoff, households increase consumption expenditures by 61% of the original payment. In comparison, households increase consumption by only 36% in response to a transitory payment adjustment induced by interest rate changes. Households with a higher payment-to-income ratio have a significantly lower marginal propensity to consume (MPC). These results have practical implications for policy markers seeking to design consumption boosting policies and are important for understanding how changes in monetary policy may affect consumer spending patterns.
Keywords: Household consumption; Mortgage payoff; Payment adjustment; Relative payment size (search for similar items in EconPapers)
JEL-codes: D12 D14 E21 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:93:y:2020:i:c:p:100-111
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