The Last Mile of Monetary Policy: Inattention, Reminders and the Refinancing Channel
| Researchers: | Shane Byrne, Kenneth Devine, Michael King and Yvonne McCarthy |
| Location: | Ireland |
| Sample: | 12,000 Irish households |
| Timeline: | 2020 |
| Theme: | Targeted communication |
Under-refinancing limits the transmission of accommodative monetary policy to the household sector and costs mortgage holders in many countries a significant fraction of income annually. We test whether targeted communication can reduce the attention frictions that inhibit transmission by partnering with a large bank to analyze a field experiment testing messages sent to 12,000 Irish households. While we find only small effects of disclosure design improvements, a reminder letter increases refinancing by 76%, from 8.9% to 15.7%. To interpret this reminder effect, we extend and estimate a mixture model of inattentive financial decision-making to allow for disclosure treatment effects on attention. We find that reminders increase the likelihood mortgage holders are attentive by over 60%, from 24% to 39%. A conservative back-of-the-envelope cost-effectiveness calculation implies that the average reminder letter generated €42 of mortgagor consumption (€605 per refinancing household). Our results illustrate that targeted central bank communication such as refinancing reminders could have a larger effect on refinancing than a standard policy rate cut. Reminders could further strengthen the refinancing channel and stimulate local consumption even when policy rates are at the zero-lower bound or set in a monetary union.
Disclosures, Nudges and Consumer Rationality in Mortgage Choice
| Researchers: | Michael King and Anuj Singh |
| Partners: | TCD |
| Location: | Ireland |
| Sample: | 3,000 adults |
| Timeline: | 2018–2019 |
| Theme: | Consumer protection and behavioural finance |
Financial products with a cashback feature typically cost consumers more in the long run, but their popularity is rising in the mortgage and credit markets. Using a nationally representative online sample in Ireland, this paper finds that consumers who are younger, less educated, suffer from present bias, and are inattentive are more likely to choose costly cash back mortgages. Further, the experiment provides strong evidence that advanced disclosure improves financial decision making of customers and that negative nudges, or advertising, encourages prospective buyers into more costly mortgages
To apply to access this dataset, please email Dr Michael King kingm4@tcd.ie