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  • October 22, 2012
  • Article
  • American Economic Review

Interest Rate Pass-Through: Mortgage Rates, Household Consumption, and Voluntary Deleveraging

By: Marco Di Maggio, Amir Kermani, Benjamin Keys, Tomasz Piskorski, Rodney Ramcharan, Amit Seru and Vincent Yao
  • Format:Print
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Abstract

Exploiting variation in the timing of resets of adjustable-rate mortgages (ARMs), we find that a sizable decline in mortgage payments (up to 50%) induces a significant increase in car purchases (up to 35%). This effect is attenuated by voluntary deleveraging. Borrowers with lower incomes and housing wealth have significantly higher marginal propensity to consume. Areas with a larger share of ARMs were more responsive to lower interest rates and saw a relative decline in defaults and an increase in house prices, car purchases, and employment. Household balance sheets and mortgage contract rigidity are important for monetary policy pass-through.

Keywords

Monetary Policy; Household Finance; Refinancing; Contract Rigidities; Debt Rigidity; MPC; Deleveraging; Personal Finance; Household; Policy; Borrowing and Debt; Macroeconomics

Citation

Di Maggio, Marco, Amir Kermani, Benjamin Keys, Tomasz Piskorski, Rodney Ramcharan, Amit Seru, and Vincent Yao. "Interest Rate Pass-Through: Mortgage Rates, Household Consumption, and Voluntary Deleveraging." American Economic Review 107, no. 11 (November 2017): 3550–3588. (Note: this is a combined version of working papers Monetary Policy Pass-Through: Household Consumption and Voluntary Deleveraging by M. Di Maggio, A. Kermani and R. Ramcharan previously Revise & Resubmit at American Economic Review and Mortgage Rates, Household Balance Sheets, and the Real Economy by B. Keys, T. Piskorski, A. Seru, and V. Yao previously Revise and Resubmit at Journal of Political Economy.)
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About The Author

Marco Di Maggio

Finance
→More Publications

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More from the Authors
  • The Pass-Through of Uncertainty Shocks to Households By: Marco Di Maggio, Amir Kermani, Rodney Ramcharan, Vincent Yao and Edison Yu
  • The Use and Misuse of Patent Data: Issues for Finance and Beyond By: Josh Lerner and Amit Seru
  • When Harry Fired Sally: The Double Standard in Punishing Misconduct By: Mark Egan, Gregor Matvos and Amit Seru
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