Interest Rates Following Financial Re-Regulation

12 Pages Posted: 11 Mar 2010

See all articles by Jeffrey R. Campbell

Jeffrey R. Campbell

University of Notre Dame; Tilburg University

Zvi Hercowitz

Tel Aviv University - Eitan Berglas School of Economics; National Bureau of Economic Research (NBER)

Date Written: March 5, 2010

Abstract

This article uses a calibrated general-equilibrium model of lending from the wealthy to the middle class to evaluate the effects of tightening household lending standards. The authors simulate a rise in down payment and amortization rates from their average values in the late 1990s and early 2000s to levels more typical of the era before the financial deregulation of the early 1980s. Their results show a drop in loan demand. This substantially lowers interest rates for an extended period. Counterintuitively, tightening lending standards makes borrowers better off.

Keywords: financial regulation, mortgage debt, interest rates, Financial Markets and the Macroeconomy, Studies of Particular Policy Episodes

Suggested Citation

Campbell, Jeffrey R. and Hercowitz, Zvi, Interest Rates Following Financial Re-Regulation (March 5, 2010). Economic Perspectives, Vol. XXXIV, No. 1, 2010, Available at SSRN: https://ssrn.com/abstract=1565656

Jeffrey R. Campbell (Contact Author)

University of Notre Dame ( email )

United States

Tilburg University ( email )

Tilburg, 5000 LE
Netherlands

Zvi Hercowitz

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel
+972 3 640 9916 (Phone)
+972 3 640 9908 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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