Consumer Responseto Mortgage Payment Shocks: evidence from Canada

Last registered on September 12, 2024
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Pre-Trial

Trial Information

General Information

Title
Consumer Responseto Mortgage Payment Shocks: evidence from Canada
RCT ID
AEARCTR-0014295
Initial registration date
September 02, 2024

Initial registration date is when the trial was registered.

It corresponds to when the registration was submitted to the Registry to be reviewed for publication.

First published
September 12, 2024, 5:25 PM EDT

First published corresponds to when the trial was first made public on the Registry after being reviewed.

Locations

Country
Canada
Region

Primary Investigator

Name
Salle Isabelle
Affiliation
University of Ottawa and University of Amsterdam
Contact Primary Investigator

Other Primary Investigator(s)

Additional Trial Information

Status
In development
Start date
2024-09-16
End date
2025-03-31
Keywords
Behavior, Education, Finance & Microfinance
Additional Keywords
households, economics
JEL code(s)
E70, D10, E43, E58
Secondary IDs
Prior work
This trial does not extend or rely on any prior RCTs.
Abstract
This project uses a survey experiment to shed light on the effects of future income shocks on households’ decisions within the unique context of the Canadian mortgage market. It aims to inform the effects on aggregate demand and financial stability of increases in nominal interest rates. The current Canadian context provides a unique natural experiment: over the past four years, nominal interest rates have surged from historic lows – leading to significant mortgage debt accumulation – to rapid increases due to inflation surge. Unlike the US and most of Europe, Canadian mortgage rates are typically fixed for no more than five years, resulting in substantial negative payment shocks upon renewal. Exploiting the variation in the timing and size of the shocks further allows a quasi-random matching process, a common challenge in natural experiments.
This project will investigate the extent to which consumers correctly anticipate their mortgage shock, and which actions in terms of consumption, labor supply, saving, investment and debt they are planning in face of it, which we will then interpret in light of the theoretical model of consumption behavior.
External Link(s)

Registration Citation

Citation
Isabelle, Salle. 2024. "Consumer Responseto Mortgage Payment Shocks: evidence from Canada." AEA RCT Registry. September 12. https://doi.org/10.1257/rct.14295-1.0
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Experimental Details

Interventions

Intervention(s)
Canadian mortgage holders will participate in the survey experiment in which they will be provided information about future expected payment shocks and interest rates, which constitute the survey instruments.
Intervention Start Date
2024-09-16
Intervention End Date
2025-03-31

Primary Outcomes

Primary Outcomes (end points)
Expectations of interest rates, inflation and personal income + consumption/saving allocation
Primary Outcomes (explanation)
We want to see how expected personal income, inflation and interest rate react to information about future mortgage interest rates and expected payment shocks, and how consumers adapt their savings, investment and consumption decisions in light of these expectations (do they save more or go less into debt? prioritize repaying debt? consume less? or try to increase their income differently? etc.)

Secondary Outcomes

Secondary Outcomes (end points)
Secondary Outcomes (explanation)

Experimental Design

Experimental Design
3,000 mortgage holders in Canada will be surveyed and provided information about future interest rates and expected payment shocks. Their expectations of the main economic variables along with their financial plans will be elicited before and after the treatment, and a few months later, to measure the persistence of the treatment effects, and assess whether the self-reported intentions have materialized.
Experimental Design Details
Not available
Randomization Method
Randomization by a random number generator one the computer
Randomization Unit
individual respondent
Was the treatment clustered?
No

Experiment Characteristics

Sample size: planned number of clusters
1
Sample size: planned number of observations
3,000
Sample size (or number of clusters) by treatment arms
1,500
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
A 5 p.p. cross-treatment difference in the fraction of people prioritizing repaying debt shall be detectable. - An effect size of 5p.p. between 55% and 60% across two treatments is detectable (7.9*(0.55*(1-0.55)+0.6*(1-0.6))/((0.55-0.6)^2)=1,540 per group). - For a continuous outcome, a difference in propensity to consumer of up to 4p.p., with a standard deviation of 25 should be detectable, With a standard deviation of 30, the difference shall be at least 5p.p. to be detectable.
Supporting Documents and Materials
IRB

Institutional Review Boards (IRBs)

IRB Name
IRB Approval Date
IRB Approval Number
Analysis Plan