American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Borrowing and Spending in the Money: Debt Substitution and the Cash-Out Refinance Channel of Monetary Policy
American Economic Review
(pp. 3909–40)
Abstract
We show that the strong negative effect of higher mortgage rates on cash-out refinancing reflects substitution into other borrowing products, not large changes in total new household borrowing. We exploit plausibly exogenous changes in interest rates due to unconventional monetary policy surprises to show that changes in cash-out and other borrowing are roughly offsetting. The elasticity of new household borrowing with respect to mortgage rates is low and varies little with the borrower's outstanding mortgage rate. Our results suggest that the cash-out refinance channel of unconventional monetary policy is weak and not path dependent.Citation
Anenberg, Elliot, Tess Scharlemann, and Eileen van Straelen. 2025. "Borrowing and Spending in the Money: Debt Substitution and the Cash-Out Refinance Channel of Monetary Policy." American Economic Review 115 (11): 3909–40. DOI: 10.1257/aer.20231264Additional Materials
JEL Classification
- E43 Interest Rates: Determination, Term Structure, and Effects
- E52 Monetary Policy
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- G51 Household Finance: Household Saving, Borrowing, Debt, and Wealth