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The Hidden Costs of Hidden Debt

Johan Almenberg and Artashes Karepetian ()
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Johan Almenberg: Regeringskansliet, Finansdepartementet
Artashes Karepetian: Norges Bank, Oslo

No 1206, Working Papers from Departament Empresa, Universitat Autònoma de Barcelona

Abstract: We report evidence that salience may have economically significant effects on homeowners' borrowing behavior, through a bias in favour of less salient but more costly loans. Survey evidence corroborates the existence of such a bias. We outline a simple model in which some consumers are biased and show that under plausible assumptions this a§ects prices in equilibrium. Market data support the predictions of the model.

Keywords: salience; debt; housing market; co-op; capital tructure (search for similar items in EconPapers)
JEL-codes: D12 G14 G21 G32 (search for similar items in EconPapers)
Date: 2011-10, Revised 2011-10
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Published in Working Papers at the Department of Business, January pages 1-41

Downloads: (external link) Revised version, 2011 (application/pdf)

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