Interest and non-interest terms in the process of mortgage market clearing: a comment

Abstract

In a recent contribution to this Review Browne (1988) considers the problem of estimating mortgage demand and supply functions in situations where the speed of interest rate adjustment is insufficient to eliminate excess demand/supply within a given quarter. Browne's model of the Irish mortgage market is derived from the work of Ito and Ueda (1981) who distinguish between excess demand and supply regimes according to the speed and direction of change in the observed interest rate on mortgages. An additional feature of Browne's model is his use of non-interest terms to determine the short-run flow demand for mortgage finance. Specifically, Browne specifies short-run market demand as a function of the downpayment ratio required by institutional lenders. This ratio is introduced as a shift variable in the flow demand function with the consequence that short-run excess demand may be totally or partially eliminated by a combination of changes in interest rates and the downpayment ratio.