Household Risk Management and Optimal Mortgage Choice

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Household Risk Management and Optimal Mortgage Choice

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dc.contributor.author Campbell, John
dc.contributor.author Cocco, Joao
dc.date.accessioned 2009-07-09T13:22:25Z
dc.date.issued 2003
dc.identifier.citation Campbell, 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.issn 0033-5533 en
dc.identifier.uri http://nrs.harvard.edu/urn-3:HUL.InstRepos:3157876
dc.description.abstract This 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.sponsorship Economics en
dc.language.iso en_US en
dc.publisher MIT Press en
dc.relation.isversionof http://dx.doi.org/10.1162/003355303322552847 en
dash.license LAA
dc.title Household Risk Management and Optimal Mortgage Choice en
dc.relation.journal Quarterly Journal of Economics en
dash.depositing.author Campbell, John

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