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Mortgage Debt and the Consumption Response to Fiscal Transfers

Author

Listed:
  • Ross Batzer

    (Federal Housing Finance Agency)

Abstract

This paper studies how mortgage debt shapes the consumption response to fiscal transfers using an incomplete markets model with housing and defaultable longterm debt. The model is estimated to match the share of households in the data whose spending is constrained by low liquidity. Among homeowners, the model predicts those with mortgage debt have an average response to transfers six times larger than those without debt. Spending responses are found to be poorly correlated with earnings. Unlike a standard model without mortgage debt, the model with mortgages predicts restricting transfers based on income may substantially reduce their efficacy in increasing aggregate spending.

Suggested Citation

  • Ross Batzer, 2023. "Mortgage Debt and the Consumption Response to Fiscal Transfers," FHFA Staff Working Papers 23-07, Federal Housing Finance Agency.
    • Handle: RePEc:hfa:wpaper:23-07
    as

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    File URL: https://www.fhfa.gov/document/wp2307.pdf
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    File URL: https://www.fhfa.gov/research/papers/wp2307
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    References listed on IDEAS

    as
    1. Jonathan Halket & Lars Nesheim & Florian Oswald, 2020. "The Housing Stock, Housing Prices, And User Costs: The Roles Of Location, Structure, And Unobserved Quality," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 61(4), pages 1777-1814, November.
    2. Greg Kaplan & Giovanni L. Violante, 2014. "A Model of the Consumption Response to Fiscal Stimulus Payments," Econometrica, Econometric Society, vol. 82(4), pages 1199-1239, July.
    3. Edward L. Glaeser & Joseph Gyourko, 2007. "Arbitrage in Housing Markets," NBER Working Papers 13704, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    mortgages; macro-policy; stimulus; marginal propensity to consume;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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