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Houses as ATMs? Mortgage Refinancing and Macroeconomic Uncertainty

Nikolai Roussanov, Michael Michaux and Hui Chen ()
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Michael Michaux: USC Marshall

No 1369, 2011 Meeting Papers from Society for Economic Dynamics

Abstract: This paper constructs a theory of land market activity in settings where there is uncertainty and private information about the security of land tenure. Land sellers match with buyers in a competitive search environment, and an illiquid land market emerges as a screening mechanism. As a consequence, adverse selection and an insecure system of property rights stifle land market transactions. As a useful application of the model, I analyze the relationships between the characteristics of the land market and labour flows between agricultural and off-farm employment. Empirical analysis using household level data from Indonesia provides credence to the proposed mechanism. Difference-in-difference estimation and probit analysis show that formally titled land is actively traded, while untitled land is less liquid. This is consistent with the theory given that possession of a legal land certificate improves ownership security, and ac- cess to a land registry reduces the asymmetry of information. Additional implications of the theory are verified empirically by studying the differences between markets for unregistered land across Indonesian provinces.

Date: 2011
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Working Paper: Houses as ATMs? Mortgage Refinancing and Macroeconomic Uncertainty (2013) Downloads
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