Consumption and initial mortgage conditions: evidence from survey data

Giacomo Masier and Ernesto Villanueva

No 1297, Working Paper Series from European Central Bank

Abstract: Economic theory predicts that the consumption path of unconstrained home owners responds to the interest rate, while the consumption path of credit constrained home owners is determined by the size and timing of payments (mortgage maturity). We exploit the rapid expansion of mortgage markets during the last decade in Spain and a very detailed survey on household finances to estimate group-specific consumption responses to changes in the credit conditions. Our estimates suggest that the consumption of households headed by an individual with high school responds more to mortgage maturity than to the interest rate spread. The consumption of the rest of indebted households is insensitive to loan maturity. Those results are confirmed when we instrument loan maturity exploiting the fact that banks are reluctant to offer contracts with age at maturity above 65. An interpretation of those results is that households headed by middle education individuals, 8% of our sample, behave as credit constrained. JEL Classification: D91

Keywords: credit constraints; household consumption; mortgages (search for similar items in EconPapers)
Date: 2011-02
New Economics Papers: this item is included in nep-ban and nep-ure
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Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Consumption and Initial Mortgage Conditions: Evidence From Survey Data (2011)
Working Paper: Consumption and initial mortgage conditions: evidence from survey data (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20111297

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