Higher mortgage interest deductions lead to higher house prices, higher debts and more mortgage defaults. That is the conclusion of PhD student Cenkhan Sahin from his research into the macroeconomic effects of mortgage interest deduction. High mortgage interest deductions also lead to a greater drop in consumer spending in the event of financial shocks. Furthermore, if the mortgage risk is high, the presence of mortgage interest deduction leads to greater fluctuations during external financial shocks. Sahin thus provides empirical and theoretical evidence for the idea that mortgage interest deduction is a relevant factor in preventing mortgage defaults.
Sahin’s doctoral thesis contains four studies into the importance of macroeconomic and financial stability and the role of policy. He researched questions that arose in the aftermath of the recent financial crisis, which is considered to be one of the worst in modern economic history.
Sahin concludes that it is important to look at the housing market in light of the macroprudential policy of De Nederlandsche Bank, the supervisory authority that focuses on the solidity of the financial system as a whole. Policy that aims to support individual home owners by providing mortgage interest deductions can be dangerous from the perspective of macroeconomic stability. In contrast, policy that aims to calm markets by providing more information and transparency can help promote financial stability. Stress tests enable the supervisory authority to achieve this.
Together with Ekaterina Neretina (a PhD student at Tilburg University) and UG professor Jakob de Haan, Sahin quantified market reactions to the American stress tests that were carried out after the financial crisis. He concludes that the tests provided valuable information for the markets, and can thus help increase transparency in banking. They also appear to be a useful tool for mitigating systematic and systemic risk in stock and credit markets.
Sahin and De Haan studied the reactions of the financial markets to the ECB’s Comprehensive Assessment. He concludes that publishing information about the stress test only influenced the markets to a certain extent. The limited market response can be interpreted in two ways: the financial markets did not trust the assessment and thus decided to ignore the results; or, more plausibly, the results of the assessment were in line with market expectations.
Sahin also researched non-listed banks during a period of exuberance on the financial markets, and evaluated the performance of government-owned banks. He shows that many banks are government-owned, and that these banks’ performance is below average. He also shows that the risk is greater if a bank is government-owned. It appears to be inefficient and a greater risk for governments to own banks, even in times of excessive credit growth.
> More news from the Faculty of Economics and Business
> FEB experts in the media
Professor of Economics Sjoerd Beugelsdijk regularly asks himself how to deal with increasing polarization in the Netherlands. He is not very optimistic, given the ‘toxic cocktail’ of underlying causes. He wrote about this subject in his book De...
Different from previous years but still surprising, fun, healthy, and for the whole family: join Groningen’s take on this year’s national weekend of science, organized by the University of Groningen (UG) and Hanze University of Applied Sciences...
From Zwarte Piet (‘Black Pete’) to the coronavirus, from immigration to education, and from farmers and nitrogen to the housing market: the Netherlands is increasingly becoming polarized. In every debate, the standpoints seem to be growing further...
The UG website uses functional and anonymous analytics cookies. Please answer the question of whether or not you want to accept other cookies (such as tracking cookies).
If no choice is made, only basic cookies will be stored. More information