Mortgage Refinancing and the Marginal Propensity to Consume

Simone Pesce and Liang Zhang
Additional contact information
Simone Pesce: Boston College and Central Bank of Ireland
Liang Zhang: Boston College

No 10/RT/25, Research Technical Papers from Central Bank of Ireland

Abstract: This paper investigates the role of mortgage refinancing in shaping the estimates of marginal propensity to consume (MPC) in the United States and its implications for U.S. fiscal policy. Using household data, we find that MPCs decrease during the year of mortgage refinancing and stabilize afterwards, particularly among households with lower liquid assets, higher debt-to-income ratios, and valuable illiquid assets. The empirical evidence suggests that refinancing provides extra liquidity, reducing MPCs. We leverage on a partial equilibrium model to quantitatively assess these effects and to explore the role of home-equity extractions for fiscal policy. Our findings highlight a new dimension for the efficacy of cash transfers: targeted programs that consider higher MPCs of no-refinancers generate savings between 4 and 12% compared to non-targeted programs. These estimates imply approximately $30 billions in potential savings under the CARES Act of March 2020.

Keywords: Mortgage Refinance; Households Heterogeneity; Marginal Propensity to Consume; Fiscal Transfers; Housing; Fiscal Policy. (search for similar items in EconPapers)
JEL-codes: E21 E62 G21 G51 H31 (search for similar items in EconPapers)
Date: 2025-08
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.centralbank.ie/docs/default-source/pub ... df?sfvrsn=8019691a_5 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cbi:wpaper:10/rt/25

Access Statistics for this paper

More papers in Research Technical Papers from Central Bank of Ireland Contact information at EDIRC.
Bibliographic data for series maintained by Fiona Farrelly ().