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dc.contributor.authorCampbell, John
dc.contributor.authorCocco, Joao
dc.date.accessioned2009-07-09T13:22:25Z
dc.date.issued2003
dc.identifier.citationCampbell, John Y., and Joao F. Cocco. 2003. Household risk management and optimal mortgage choice. Quarterly Journal of Economics 118(4): 1449-1494.en
dc.identifier.issn0033-5533en
dc.identifier.urihttp://nrs.harvard.edu/urn-3:HUL.InstRepos:3157876
dc.description.abstractThis paper asks how a household should choose between a fixed-rate (FRM) and an adjustable-rate (ARM) mortgage. In an environment with uncertain inflation a nominal FRM has a risky real capital value, whereas an ARM has a stable real capital value but short-term variability in required real payments. Numerical solution of a life-cycle model with borrowing constraints and income risk shows that an ARM is generally attractive, but less so for a risk-averse household with a large mortgage, risky income, high default cost, or low moving probability. An inflation-indexed FRM can improve substantially on standard nominal mortgages.en
dc.description.sponsorshipEconomicsen
dc.language.isoen_USen
dc.publisherMIT Pressen
dc.relation.isversionofhttp://dx.doi.org/10.1162/003355303322552847en
dash.licenseLAA
dc.titleHousehold Risk Management and Optimal Mortgage Choiceen
dc.relation.journalQuarterly Journal of Economicsen
dash.depositing.authorCampbell, John
dc.identifier.doi10.1162/003355303322552847*
dash.contributor.affiliatedCampbell, John


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