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The role of households’ borrowing constraints in the transmission of monetary policy

Fergus Cumming and Paul Hubert

No 836, Bank of England working papers from Bank of England

Abstract: This paper investigates how the transmission of monetary policy to the real economy depends on the distribution of household debt. Using an original loan‑level dataset covering the universe of UK mortgages, we assess the effect of monetary shocks on aggregate consumption by exploiting time variation in a measure of the proportion of households close to their borrowing constraint. We find that monetary policy is most potent when there is a large share of constrained households. In contrast, we find no evidence that the average level of borrowing relative‑to‑income of the household sector affects the transmission of monetary policy.

Keywords: Heterogeneity; distributions; mortgage debt; state-dependence (search for similar items in EconPapers)
JEL-codes: E21 E52 E58 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2019-12-20, Revised 2020-01-06
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0836

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