American Economic Review Vol. 110 No. 10 2020
Sources of Inaction in Household Finance: Evidence from the Danish Mortgage Market
Abstract
We build an empirical model to attribute delays in mortgage refinancing to psychological costs inhibiting refinancing until incentives are sufficiently strong; and behavior, potentially attributable to information-gathering costs, lowering the probability of household refinancing per unit time at any incentive. We estimate the model on administrative panel data from Denmark, where mortgage refinancing without cash-out is unconstrained. Middle-aged and wealthy households act as if they have high psychological refinancing costs; but older, poorer, and less-educated households refinance with lower probability irrespective of incentives, thereby achieving lower savings. We use the model to understand frictions in the mortgage channel of monetary policy transmission.
- DOI
- 10.1257/aer.20180865
- Volume
- 110
- Issue
- 10
- Pages
- 3184-3230
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref