Working Paper: NBER ID: w21386
Authors: Steffen Andersen; John Y. Campbell; Kasper Meisner Nielsen; Tarun Ramadorai
Abstract: We build an empirical model to decompose delays in mortgage refinancing into time-dependent inaction (a low probability of responding to a refinancing incentive in a given quarter) and state- dependent inaction (a psychological addition to the financial cost of refinancing). We estimate the model on high-quality administrative panel data from Denmark, where mortgage refinancing without cash-out is unconstrained. Middle-aged and wealthy households exhibit state-dependent inaction; but older, poorer, and less-educated households exhibit strong time-dependent inaction and thereby achieve lower savings. We use the model to understand frictions in the mortgage channel of monetary policy transmission.
Keywords: household finance; mortgage refinancing; inaction; Danish mortgage market
JEL Codes: G11; G21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| middle-aged and wealthy households exhibit state-dependent inaction (D14) | psychological refinancing costs are hump-shaped in age and increase with socioeconomic status (G41) |
| older, poorer, and less-educated households show strong time-dependent inaction (D15) | psychological refinancing costs are hump-shaped in age and increase with socioeconomic status (G41) |
| psychological refinancing costs affect the likelihood of refinancing (G41) | older households with lower education and income are less likely to consider refinancing (G51) |
| older households with lower education and income are less likely to consider refinancing (G51) | their behavior aligns with a time-dependent model (C92) |
| psychological costs reflect the unmeasured value of time spent on refinancing (G41) | varies across different demographic groups (J79) |
| delayed response to refinancing incentives (G51) | mortgage refinancing decision is challenging for certain households (G51) |
| both state-dependent and time-dependent inaction (C41) | affect different types of households (R20) |