London WC2A 2AE
NBER Working Papers and Publications
|September 2017||The Effect of House Prices on Household Borrowing: A New Approach|
with James Cloyne, Ethan Ilzetzki, Henrik Kleven: w23861
We investigate the effect of house prices on household borrowing using administrative mortgage data from the UK and a new empirical approach. The data contain household-level information on house prices and borrowing in a panel of homeowners, who refinance at regular and quasi-exogenous intervals. The data and setting allow us to develop an empirical approach that exploits house price variation coming from idiosyncratic and exogenous timing of refinance events around the Great Recession. We present two main results. First, there is a clear and robust effect of house prices on borrowing, but the responsiveness is smaller than recent US estimates. Second, the effect of house prices on borrowing can be explained largely by collateral effects. We study the collateral channel in two ways: throu...