The effect of house prices on household borrowing: a new approach
James Cloyne (),
Kilian Huber (),
Ethan Ilzetzki and
Henrik Kleven ()
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Henrik Kleven: London School of Economics
No 650, Bank of England working papers from Bank of England
We investigate the effect of house prices on household borrowing using administrative mortgage data from the United Kingdom and a new empirical approach. The data contain household-level information on house prices and borrowing in a panel of homeowners, who refinance at regular and quasi-exogenous intervals. The data and setting allow us to develop an empirical approach that exploits house price variation coming from idiosyncratic and exogenous timing of refinance events around the Great Recession. We present two main results. First, there is a clear and robust effect of house prices on borrowing, but the responsiveness is smaller than recent US estimates. Second, the effect of house prices on borrowing can be explained largely by collateral effects. We study the collateral channel in two ways: through a multivariate heterogeneity analysis of proxies for collateral and wealth effects, and through a test that exploits interest rate notches that depend on housing collateral.
Keywords: House prices; household borrowing; collateral channel (search for similar items in EconPapers)
JEL-codes: D14 E21 E32 E43 E51 G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-eur, nep-mac and nep-ure
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Working Paper: The Effect of House Prices on Household Borrowing: A New Approach (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0650
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