Sources of Inaction in Household Finance: Evidence from the Danish Mortgage Market

Abstract

We build an empirical model to decompose delays in mortgage refinancing into time-dependent inaction (a low probability of responding to a refinancing incentive in a given quarter) and statedependent inaction (a psychological addition to the financial cost of refinancing).We estimate the model on high-quality administrative panel data from Denmark, where mortgage refinancing without cash-out is unconstrained.Middle-aged and wealthy households exhibit state-dependent inaction; but older, poorer, and less-educated households exhibit strong time-dependent inaction and thereby achieve lower savings.We use the model to understand frictions in the mortgage channel of monetary policy transmission.

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