Time Series Models of Mortgage Choice: Evidence of Lender Influence

Mike Devaney

The Journal of Real Estate Finance and Economics, 1994, vol. 8, issue 3, 245-57

Abstract: Unit root, co-integration, and Granger Causality are used to test specification of a generalized time series model of mortgage choice. Unit root tests determine that both the fixed-adjustable spread (FAsp) and the proportion of ARM originations (AP) are first difference stationary. The cointegrating vector between FAsp and AP was found to be weak, raising questions regarding their "long-term relationship." Causality tests determined that ARM originations Granger causes the fixed-adjustable mortgage spread (AP->FAsp) rather than FAsp->AP. This result suggests that mortgage originators adjust the current FAsp spread based on last periods allocation. The coefficient vector for this specification was unstable and became increasingly negative during the 1980s. Copyright 1994 by Kluwer Academic Publishers

Date: 1994
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