The Rise and Fall of the Arm: An Econometric Analysis of Mortgage Choice
- 1 February 1988
- journal article
- Published by JSTOR in The Review of Economics and Statistics
- Vol. 70 (1) , 93
- https://doi.org/10.2307/1928154
Abstract
This paper estimates an empirical model of the choice between adjustable- and fixed-rate mortgages using a large national data base compiled by the National Association of REALTORS. The explanatory variables in the probit choice equation include borrower characteristics, regional dummies, the FRM rate, and the FRM-ARM rate differential. Since the interest rate on the mortgage not chosen is unobserved, this rate must be estimated in a way that eliminates possible selectivity bias. Simulation of the estimated choice equation provides insight into the origin of the ARM revolution.Keywords
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