<p>Refinancing can change the aggregate consumption because households are heterogeneous in their MPC. Households that benefit from the refinancing are not random sub-sample of all households, and that means that you should not assume they have the same MPC, even on average. You can have look at <a href="https://benjaminmoll.com/wp-content/uploads/2020/08/JMCB.pdf" rel="nofollow noreferrer">Kaplan, Moll, Giovanni and Violant</a> or <a href="https://benjaminmoll.com/wp-content/uploads/2019/07/WIMM.pdf" rel="nofollow noreferrer">Ahn, Kaplan, Moll, Winberry and Wolfother</a> or other HANK literature.</p>
<p>You could test this in multiple ways. For example, if you can find some natural experiment, some situation where there was exogenous shock that affected amount of refinancing, you can use that exogenous shock to find the causal effect of refinancing on consumption.</p>

CC BY-SA 4.0
2024-08-15T13:15:39.157Z
Thank you for directing towards the relevant literature. I may have some follow up questions.
ps12345
CC BY-SA 4.0
2024-08-15T10:42:15.097Z
2024-08-15T10:42:15.097Z
csilvia
<p>QE impact on wealth creation and credit as documentd by DeMaggio et. al. (2017) and DeMaggio et. al. (2020).
Lower rates reduced monthly payment about 52% ($900) on reset, thereby increasing disposable income totaling tens of thousands of dollars over the remaining life of the mortgage.
Increased consumption (Refinancing has led to increase consumption in auto sector)
Debt consolidation or repayment
Lower interest payment creates an illiquid wealth shock.
Cash-out refinance creates liquid wealth.</p>
<p>Question:
Refinancing activity does not change the total consumption in economy – the composition of the consumption for the household changes, i.e., from housing to the different sector. However, the housing debt is now subsidized through the public debt and the freed-up capital is used for other consumption. Further, refinancing extends the mortgage period, so in a way, we are transforming debt structure and debt composition, i.e., mortgage (MBS/ABS) replaces the credit card and auto debts? What would be the best way to test this theory if there is any merit to it?</p>

<money-supply><quantitative-easing><public-debt>
How Refinancing is changing the debt structure in the economy
ps12345
# How Refinancing is changing the debt structure in the economy

(Asked by: username_0 on 2024-08-14)

QE impact on wealth creation and credit as documentd by DeMaggio et. al. (2017) and DeMaggio et. al. (2020).
Lower rates reduced monthly payment about 52% ($900) on reset, thereby increasing disposable income totaling tens of thousands of dollars over the remaining life of the mortgage.
Increased consumption (Refinancing has led to increase consumption in auto sector)
Debt consolidation or repayment
Lower interest payment creates an illiquid wealth shock.
Cash-out refinance creates liquid wealth.

Question:
Refinancing activity does not change the total consumption in economy – the composition of the consumption for the household changes, i.e., from housing to the different sector. However, the housing debt is now subsidized through the public debt and the freed-up capital is used for other consumption. Further, refinancing extends the mortgage period, so in a way, we are transforming debt structure and debt composition, i.e., mortgage (MBS/ABS) replaces the credit card and auto debts? What would be the best way to test this theory if there is any merit to it?

**Tags:** money-supply, quantitative-easing, public-debt


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## 1 answers

### Answer by username_1 on 2024-08-15. Score: 2

Refinancing can change the aggregate consumption because households are heterogeneous in their MPC. Households that benefit from the refinancing are not random sub-sample of all households, and that means that you should not assume they have the same MPC, even on average. You can have look at [Kaplan, Moll, Giovanni and Violant](https://benjaminmoll.com/wp-content/uploads/2020/08/JMCB.pdf) or [Ahn, Kaplan, Moll, Winberry and Wolfother](https://benjaminmoll.com/wp-content/uploads/2019/07/WIMM.pdf) or other HANK literature.

You could test this in multiple ways. For example, if you can find some natural experiment, some situation where there was exogenous shock that affected amount of refinancing, you can use that exogenous shock to find the causal effect of refinancing on consumption.

> **Comments:**
> **username_0**: Thank you for directing towards the relevant literature. I may have some follow up questions.  

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