Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/53930
Authors: 
Allen, Jason
Clark, Robert
Houde, Jean-François
Year of Publication: 
2011
Series/Report no.: 
Bank of Canada Working Paper 2011,3
Abstract: 
This paper studies discounting in mortgage markets. Using transaction-level data on Canadian mortgages, we document that over time there's been an increase in the average discount, along with substantial dispersion. The standard explanation for dispersion in credit markets is that lenders engage in risk-based pricing. Our setting is unique since contracts are guaranteed by government-backed insurance, meaning risk cannot be the main driver of dispersion. We find that mortgage rates depend on individual, contractual, and shopping market characteristics. There is also an important amount of unobserved heterogeneity in rates, which could be attributed to search costs.
Subjects: 
Financial institutions
Financial services
JEL: 
D4
G21
L0
Document Type: 
Working Paper
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