Tarun Ramadorai, Imperial College London

Refinancing cross-subsidies in the mortgage market

Abstract

In household finance markets, inactive households can implicitly cross-subsidize active households who promptly respond to financial incentives. We assess the magnitude and distribution of cross-subsidies in the mortgage market. To do so, we build a model of household mortgage refinancing and structurally estimate it on rich administrative data on the stock of outstanding UK mortgages in June 2015. We estimate sizeable cross-subsidies during this sample period, from relatively poorer households and those located in less-wealthy areas towards richer households and those located in wealthier areas. Our work highlights how the design of household finance markets can contribute to wealth inequality. Estimated cross-subsidies may differ in more recent periods given changes in the UK mortgage market since 2015.

Tarun Ramadorai is Professor of Financial Economics at Imperial College London. He has a broad range of research interests in the areas of household finance, asset pricing, international finance, and real estate. He is greatly interested in finance and economics issues in emerging markets, with a particular focus on India. He has published on these topics in a number of scholarly journals in finance and economics including the American Economic Review, the Review of Economic Studies, the Journal of Economic Literature, the Journal of Finance, the Journal of Financial Economics, and the Review of Financial Studies.

Tarun currently serves as an Editor of the Review of Financial Studies. He has previously served as an Associate Editor of the Review of Financial Studies and Management Science, and as a council member of the Society of Financial Studies. He is currently a Research Fellow of CEPR, a Senior Academic Fellow of the Asian Bureau of Finance and Economics Research (ABFER), and a Nonresident Senior Fellow at the National Council of Applied Economic Research (NCAER).

He has also served in a range of policy roles in addition to his academic work, including Chairman of the Inter-Regulatory Committee on Household Finance constituted by the Reserve Bank of India, Visiting Scholar at the Economic Advisory Council to the Prime Minister of India, and Economic Adviser to the European Securities and Markets Authority. He is currently on the Norges Bank Investment Management Allocation Advisory Board, and a member of the India-UK Financial Partnership.

Tarun has a BA in Mathematics and Economics from Williams College, an MPhil in Economics from the University of Cambridge, and a PhD in Business Economics from Harvard University. Prior to his role at Imperial, Tarun spent over a decade at the University of Oxford.

You can read more about Tarun Ramadorai here

CEBI contact: Patrick Moran