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Another Look at the Capitalization of Interest Subsidies: Evidence from Sweden

Tommy Berger, Peter Englund, Patric Hendershott and Bengt Turner

No 6365, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We analyze by far the most extensive data base yet employed in estimating capitalization" of below-market interest rates into asset prices: nearly 300,000 sales of owner-occupied homes in" Sweden from 1981 to 1993 with 40,000 including government subsidized interest rates. Our" estimates indicates very clearly that interest subsidies are capitalized into house prices. The" below-market financing parameter is consistently significantly negative in all model" specifications, irrespective of assumptions about the degree of foresight structure and interest rate measure for all ten regions that we have studied. In our favored model" specification the estimated capitalization coefficients center on minus unity capitalization.

JEL-codes: G12 (search for similar items in EconPapers)
Date: 1998-01
Note: PE
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Published as Journal of Money, Credit and Banking (May 2000).

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