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Article: Mortgage Debt, Hand-to-Mouth Households, and Monetary Policy Transmission

TitleMortgage Debt, Hand-to-Mouth Households, and Monetary Policy Transmission
Authors
KeywordsConsumption
Monetary policy
Disposable income shocks
MPC
Mortgage
Issue Date2022
PublisherOxford University Press. The Journal's web site is located at http://rof.oxfordjournals.org/
Citation
Review of Finance, 2022, v. 26 n. 3, p. 487-520 How to Cite?
AbstractUsing a representative sample of credit card holders from a leading Chinese commercial bank, we investigate how consumers respond to an unexpected interest rate decrease that automatically reduces interest expenses for all mortgage borrowers in the country and thereby generates significant positive disposable-income shocks. Our difference-in-differences analysis shows that compared with homeowners without mortgage obligations, mortgage borrowers increased their monthly credit card spending by 8.7% after the 230-bps mortgage rate reduction announced in September 2008. We find a significant spending response both immediately after the announcement and during the post-reset period. The credit card delinquency rate also decreased after the mortgage rate reset. Subsequent to an interest-rate increase episode, mortgage borrowers symmetrically reduced their credit card spending. Hand-to-mouth mortgage borrowers experienced a more pronounced spending increase. The debt-service channel plays an important role in transmitting monetary policy—our estimate implies a marginal propensity to consume 0.40–0.54 through credit card spending.
Persistent Identifierhttp://hdl.handle.net/10722/311720
ISSN
2021 Impact Factor: 5.059
2020 SCImago Journal Rankings: 4.933

 

DC FieldValueLanguage
dc.contributor.authorAgarwal, S-
dc.contributor.authorDeng, Y-
dc.contributor.authorGu, Q-
dc.contributor.authorHe, J-
dc.contributor.authorQian, W-
dc.contributor.authorRen, Y-
dc.date.accessioned2022-04-01T09:12:19Z-
dc.date.available2022-04-01T09:12:19Z-
dc.date.issued2022-
dc.identifier.citationReview of Finance, 2022, v. 26 n. 3, p. 487-520-
dc.identifier.issn1572-3097-
dc.identifier.urihttp://hdl.handle.net/10722/311720-
dc.description.abstractUsing a representative sample of credit card holders from a leading Chinese commercial bank, we investigate how consumers respond to an unexpected interest rate decrease that automatically reduces interest expenses for all mortgage borrowers in the country and thereby generates significant positive disposable-income shocks. Our difference-in-differences analysis shows that compared with homeowners without mortgage obligations, mortgage borrowers increased their monthly credit card spending by 8.7% after the 230-bps mortgage rate reduction announced in September 2008. We find a significant spending response both immediately after the announcement and during the post-reset period. The credit card delinquency rate also decreased after the mortgage rate reset. Subsequent to an interest-rate increase episode, mortgage borrowers symmetrically reduced their credit card spending. Hand-to-mouth mortgage borrowers experienced a more pronounced spending increase. The debt-service channel plays an important role in transmitting monetary policy—our estimate implies a marginal propensity to consume 0.40–0.54 through credit card spending.-
dc.languageeng-
dc.publisherOxford University Press. The Journal's web site is located at http://rof.oxfordjournals.org/-
dc.relation.ispartofReview of Finance-
dc.subjectConsumption-
dc.subjectMonetary policy-
dc.subjectDisposable income shocks-
dc.subjectMPC-
dc.subjectMortgage-
dc.titleMortgage Debt, Hand-to-Mouth Households, and Monetary Policy Transmission-
dc.typeArticle-
dc.identifier.emailQian, W: wqian@hku.hk-
dc.identifier.authorityQian, W=rp02908-
dc.description.naturelink_to_OA_fulltext-
dc.identifier.doi10.1093/rof/rfac011-
dc.identifier.hkuros332490-
dc.identifier.volume26-
dc.identifier.issue3-
dc.identifier.spage487-
dc.identifier.epage520-
dc.publisher.placeUnited Kingdom-

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