Consumption Responses to Rising Mortgage Rates: Unpacking the Cash-Flow Channel of Monetary Policy

Asger Lau Andersen, Andreas Jakobsen, Mads Rahbek Jørgensen and Niels Johannesen

No 12748, CESifo Working Paper Series from CESifo

Abstract: We study the transmission of rising interest rates to consumption using granular customer data from a major bank in Denmark. We show that households with adjustable-rate mortgages gradually reduced spending and increased deposits as market rates soared in 2022 but made no further spending cuts when their mortgage rates eventually reset to a higher level in 2023-2024. These patterns are consistent with forward-looking households who respond to new information about future mortgage costs and use liquid buffers to smooth consumption. The cash-flow channel of monetary policy may therefore operate almost instantaneously even when mortgage rates reset with a significant lag.

Keywords: consumption; saving; cash-flow effect; monetary policy; mortgage (search for similar items in EconPapers)
JEL-codes: D12 D14 E21 E43 E52 (search for similar items in EconPapers)
Date: 2026
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