Dynamic Credit Rationing in the Home Mortgage Market

In this study a model of dynamic credit rationing in the home mortgage market by a profit-maximizing financial institution is developed.In the 1960s and 1970s it was widely believed that credit rationing was very important in the mortgage market. The recent deregulation and innovation in financial markets is belived to have resulted in a significant weakening of these availability effects. For the model developed it is shown that deposit diversification, such as the introduction of money market accounts in 1978, would tend to reduce the amount of any dynamic credit rationing that was occurring. Copyright American Real Estate and Urban Economics Association.