Caporale, Guglielmo Maria Costantini, Mauro Paradiso, Antonio
Year of Publication:
CESifo Working Paper: Monetary Policy and International Finance 3897
In this paper we examine the role of mortgage equity withdrawal in explaining the decline of the US saving rate, since when house prices rise and mortgage rates are low, homeowners have an incentive to withdraw housing equity and this may affect the saving rate. We estimate a Vector Error Correction (VEC) model including the saving rate, asset prices, equity withdrawal and interest rates and find that indeed mortgage equity withdrawal is a key determinant of the observed saving pattern.