Monetary policy when households have debt: new evidence on the transmission mechanism

James Cloyne, Clodomiro Ferreira Mayorga () and Paolo Surico

No 1813, Working Papers from Banco de España

Abstract: How do changes in monetary policy affect consumption? Using household data for the US and the UK, we show that most of the aggregate response of consumption to interest rates is driven by households with a mortgage. Outright home owners do not adjust expenditure at all and renters change their spending but by less than mortgagors. Income rises for all households as interest rate cuts directly affect firm investment and household consumption, boosting aggregate demand. A key dierence between these housing tenure groups is the composition of their balance sheets: mortgagors hold sizable illiquid assets but little liquid wealth, consistent with a higher marginal propensity to consume.

Keywords: monetary policy; household balance sheets; liquidity constraints (search for similar items in EconPapers)
JEL-codes: E21 E32 E52 (search for similar items in EconPapers)
Pages: 79 pages
Date: 2018-05
New Economics Papers: this item is included in nep-cba, nep-mac and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

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https://www.bde.es/f/webbde/SES/Secciones/Publicac ... 18/Files/dt1813e.pdf First version, May 2018 (application/pdf)

Related works:
Journal Article: Monetary Policy when Households have Debt: New Evidence on the Transmission Mechanism (2020)
Working Paper: Monetary policy when households have debt: new evidence on the transmission mechanism (2016)
Working Paper: Monetary Policy when Households have Debt: New Evidence on the Transmission Mechanism (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:1813

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