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Mortgage payments and household consumption in urban China

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  • Zhao, Da
  • Chen, Yifan
  • Shen, Jim.H.

Abstract

By exploiting variation both in mortgage payoffs and mortgage interest-rate resets, we find that a decline in mortgage payments induces a significant increase in nondurable goods spending, even when households have substantial amounts of liquidity. Following mortgage payoff, households increase consumption expenditures by 61% of the original payment. In comparison, households increase consumption by only 36% in response to a transitory payment adjustment induced by interest rate changes. Households with a higher payment-to-income ratio have a significantly lower marginal propensity to consume (MPC). These results have practical implications for policy markers seeking to design consumption boosting policies and are important for understanding how changes in monetary policy may affect consumer spending patterns.

Suggested Citation

  • Zhao, Da & Chen, Yifan & Shen, Jim.H., 2020. "Mortgage payments and household consumption in urban China," Economic Modelling, Elsevier, vol. 93(C), pages 100-111.
    • Handle: RePEc:eee:ecmode:v:93:y:2020:i:c:p:100-111
    DOI: 10.1016/j.econmod.2020.07.008
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    Cited by:

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    6. He, Yuan & Li, Ke & Wang, Yipan, 2022. "Crossing the digital divide: The impact of the digital economy on elderly individuals’ consumption upgrade in China," Technology in Society, Elsevier, vol. 71(C).
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    8. Sala, Hector & Trivin, Pedro, 2024. "Household finances, debt overhang and consumption patterns," Economic Modelling, Elsevier, vol. 139(C).

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    More about this item

    Keywords

    Household consumption; Mortgage payoff; Payment adjustment; Relative payment size;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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