Events at CERGE-EI

Presenter: Marta Cota, an Assistant Professor in the Finance Department at Nova SBE

Title: "Peer Information and Refinancing Inequality" (joint work with Mauro Mastrogiacomo (VU and De Nederlandsche Bank) and Ante Sterc (Banco de Portugal and Nova SBE))

Abstract: The same interest rate cut lowers mortgage costs for some households and not others: only those that refinance benefit, and refinancing rises steeply with income. We connect a part of this gradient to information shared within families: higher-income households respond more strongly to the home purchases of their relatives. In Dutch administrative registers that link mortgages to whole-population networks, we estimate this response within each income quintile, with identification from a 2016 macroprudential change in peer borrowing capacity that leaves a homeowner's own refinancing eligibility unchanged. In family networks the response rises monotonically with income, from zero in the bottom quintile to 3.27 percentage points in the top. It does not appear in workplace or neighbor networks, where the gradient is flat or non-monotone, which points to close family ties rather than generic exposure to peers as the channel that carries relevant information for decision-making. We embed this family-network gradient in a heterogeneous-agent model of refinancing with fixed-rate contracts and an endogenous term premium, in which a single income-specific loading on peer information is disciplined bin by bin by the estimates. We use the model to measure how much of the income gap in pass-through, and of the welfare gap that opens after a rate cut, is due to heterogeneous information uptake rather than to differences in financial circumstances.

Link to join online: https://cerge-ei.webex.com/cerge-ei/j.php?MTID=me77a711309d7a98968dc7e170df2e13d
Meeting number: 2744 780 9763
Meeting password: 538614