House prices, the distribution of household debt and the refinancing channel of monetary policy

Fergus Cumming and Paul Hubert

Economics Letters, 2022, vol. 212, issue C

Abstract: We investigate why the effect of monetary policy on aggregate consumption depends on the distribution of household indebtedness. Using UK loan-level micro-data, we identify the fraction of households with a limited ability to smooth consumption and find that the heterogeneous impact of monetary policy on consumption depends on house price dynamics and the share of highly-indebted households. Consumption responds strongly to monetary policy when the share of highly-indebted households is large and house prices have recently decreased, but we find no effect after periods of house price growth. Our results highlight the role of household heterogeneity and the refinancing channel in the transmission of monetary policy.

Keywords: Heterogeneity; Consumption; Mortgage debt (search for similar items in EconPapers)
JEL-codes: E21 E52 E58 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165176522000064
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:212:y:2022:i:c:s0165176522000064

DOI: 10.1016/j.econlet.2022.110280

Access Statistics for this article

Economics Letters is currently edited by Economics Letters Editorial Office

More articles in Economics Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().