How Does Monetary Policy Pass‐Through Affect Mortgage Default? Evidence from the Irish Mortgage Market

2021/12/20 by David Byrne, DAVID BYRNE, Robert J. Kelly +3
Economics, Econometrics and Finance · #Housing Market and Economics

paper · pdf · doi:10.1111/jmcb.12892

Abstract

Abstract This paper uses a quasi‐natural experiment to identify the impact of interest rates on mortgage default. Using loan‐level panel data for Ireland, we deal with selection bias by exploiting the variation between two adjustable‐rate mortgages offered in the 2000s. We link interest rates to default directly through borrower installments. We find a strong, statistically significant, impact of interest rates on default; a 1% increase in installment is associated with a 5.8% increase in the likelihood of default. We also find evidence that negative equity amplifies the increase in default risk caused by higher interest rates.

Citations

• Recent Developments in the Econometrics of Program Evaluation

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