EconPapers    
Economics at your fingertips  
 

Do Households Benefit from Financial Deregulation and Innovation? The Case of the Mortgage Market

Kristopher Gerardi (), Harvey Rosen and Paul Willen
Additional contact information
Harvey Rosen: Princeton University

No 61, Working Papers from Princeton University, Department of Economics, Center for Economic Policy Studies.

Abstract: The U.S. mortgage market has experienced phenomenal change over the last 35 years. Most observers believe that the deregulation of the banking industry and financial markets generally has played an important part in this transformation. This paper develops and implements a technique for assessing the impact of changes in the mortgage market on individuals and households. Our analysis is based on an implication of the permanent income hypothesis: that the higher a household?s future income, the more it desires to spend and consume, ceteris paribus. If we have perfect credit markets, then desired consumption matches actual consumption and current spending on housing should forecast future income. Since credit market imperfections mute this effect, we can view the strength of the relationship between housing spending and future income as a measure of the ?imperfectness? of mortgage markets. Thus, a natural way to determine whether mortgage market developments have actually helped households by decreasing market imperfections is to see whether this link has strengthened over time. We implement this framework using panel data going back to 1969. We find that over the past several decades, housing markets have become less imperfect in the sense that households are now more able to buy homes whose values are consistent with their long-term income prospects. One issue that has received particular attention is the role that the housing Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac, have played in improving the market for housing finance. We find no evidence that the GSEs? activities have contributed to this phenomenon. This is true whether we look at all homebuyers, or at subsamples of the population whom we might expect to benefit particularly from GSE activity, such as lowincome households and first-time homebuyers.

JEL-codes: D14 G21 R21 (search for similar items in EconPapers)
Date: 2007-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7) Track citations by RSS feed

Downloads: (external link)
http://www.princeton.edu/ceps/workingpapers/141rosen.pdf
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.princeton.edu/ceps/workingpapers/141rosen.pdf [301 Moved Permanently]--> https://www.princeton.edu/ceps/workingpapers/141rosen.pdf [301 Moved Permanently]--> https://gceps.princeton.edu/workingpapers/141rosen.pdf)

Related works:
Working Paper: Do Households Benefit from Financial Deregulation and Innovation? The Case of the Mortgage Market (2007) Downloads
Working Paper: Do households benefit from financial deregulation and innovation?: the case of the mortgage market (2006) Downloads
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:pri:cepsud:141rosen.pdf

Access Statistics for this paper

More papers in Working Papers from Princeton University, Department of Economics, Center for Economic Policy Studies. Contact information at EDIRC.
Bibliographic data for series maintained by Bobray Bordelon ().

 
Page updated 2020-07-11
Handle: RePEc:pri:cepsud:141rosen.pdf