Sources of Inaction in Household Finance: Evidence from the Danish Mortgage Market

Steffen Andersen, John Y. Campbell, Kasper Meisner Nielsen, Tarun Ramadorai

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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.
Original languageEnglish
JournalAmerican Economic Review
Issue number10
Pages (from-to)3184-3230
Number of pages47
Publication statusPublished - Oct 2020

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