STICERD Work in Progress Seminars
Competition and macro-prudential regulation: An empirical model of the UK mortgage supermarket
Matteo Benetton (Department of Economics, LSE)
Friday 05 May 2017 13:00 - 14:00
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Unless otherwise specified, in-person seminars are open to the public.
Those unable to join the seminars in-person are welcome to participate via zoom if the event is hybrid.
About this event
This paper develops and estimates an empirical model of the UK mortgage market and studies the effect of macro-prudential regulation on lending activity. We estimate a discrete-continuous choice demand model of mortgages with a new administrative dataset of the universe of residential mortgage originations. Borrowers decide jointly the mortgage product and the loan size facing a non-linear price schedule and affordability constraints on their choice sets. We derive a pricing equation that takes into account default and refinancing risks and we characterize the Nash-Bertrand equilibrium, subject to risk-adjusted capital constraints. We find that: 1) a 1% increase in the interest rate decreases loan demand by 2% and product demand by 3%, on average; 2) both elasticities are heterogeneous across leverage levels, borrower types and lenders; 3) a 1% higher risk-weight increase lenders' marginal cost by about 1%. We use the estimated parameters to study the pass-through of capital requirements in two different counterfactual regimes.
STICERD Work in Progress seminars are held on Fridays in term time at 13:00-14:00, ONLINE, unless specified otherwise.
Seminar organisers: Philip Barteska and Alix Bonargent
For further information please contact Lubala Chibwe, either by email: email@example.com.
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