Joint research unit 7235

Monetary Policy and Housing Loan Default

Barbara Castillo Rico, George Overton

The most direct channel of transmission of monetary policy to households is the modification of ECB lending and deposit facilities rates. Outstanding borrowers with adjustable rate loans face affordability conditions changes with important consequences on their financial situation. In this paper, we study the impact of monetary policy changes on housing credit default over the period 2004-2015. We use an extensive panel of French housing loans to reconstruct amortization tables over the life of each loan and compute changes in quarterly payments due to monetary policy action, later using hazard models to map changes in interest rates to default. Importantly, our data set allows the assumption of the absence of strategic default our analysis, which isolates involuntary default in our estimates. First, we find that a 100 bp increase in quarterly payment induced by variations in the 3-month Euribor increases the probability of default by around 5%. Second, we identify employment stability as a major insurance factor against rising policy rates during contractionary monetary policy action. Finally, we provide evidence about the existence of a self-selection of riskier borrower profiles into adjustable rate loans. The concern regarding payment size on adjustable-rate loans is of heightened importance in a monetary policy context characterized by uncertainty over the timing of a rate increase following a sustained period of low or negative rates.

AGENDA

Monday 27 June 2022

Law, Institutions and Economics in Nanterre (LIEN)

Miriam Buiten (St Gallen Univ)

En distanciel à 11H30

From intermediaries to moderators of the internet: Should online platforms be liable?

Monday 27 June 2022

Law, Institutions and Economics in Nanterre (LINK)

Miriam Buiten (St Gallen Univ)

En distanciel à 11H30

From intermediaries to moderators of the internet: Should online platforms be liable?

Thursday 30 June 2022

Doctorants

Zoltán Szücs | Gagnie Pascal Yebarth

Salle 401-402

Le rôle de la police municipale dans la satisfaction des attentes de la population parisienne en termes de tranquillité publique | Politiques publiques et externalités dans les jeux stratégiques de marché

Thursday 30 June 2022

PhD students

Zoltán Szücs | Gagnie Pascal Yebarth

Salle 401-402

Le rôle de la police municipale dans la satisfaction des attentes de la population parisienne en termes de tranquillité publique | Politiques publiques et externalités dans les jeux stratégiques de marché

Friday 1 July 2022

Colloques et Workshops

9th Workshop on Economic Analysis of Litigation

Friday 1 July 2022

Colloques et Workshops

9th Workshop on Economic Analysis of Litigation

Monday 4 July 2022

Colloques et Workshops

Joint Webinar on Environment and Health in Seaport Cities

Monday 4 July 2022

Colloques et Workshops

Webinar conjoint sur l’environnement et la santé dans les villes maritimes

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