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Household Debt and Monetary Policy: Revealing the Cash-Flow Channel

Flod�n, Martin, Kilstr�m, Matilda, Josef Sigurdsson and Roine Vestman
Authors registered in the RePEc Author Service: Martin Floden ()

No 12270, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We examine the cash-flow channel of monetary policy, i.e. the effect of monetary policy on spending when households hold debt linked to short-term rates such as adjustable rate mortgages (ARMs). Using registry-based data on Swedish households, we estimate substantial heterogeneity in consumption responses to a change in monetary policy through the cash-flow channel. Our findings imply that monetary policy has a stronger effect on real economic activity when households are highly indebted and have ARMs. For homeowners with a debt-to-income ratio of around 3 and ARMs, the estimated response is equivalent to a marginal propensity to consume of 0.5.

Keywords: adjustable rate mortgages; Consumption; Household Debt; monetary policy; variable interest rates (search for similar items in EconPapers)
JEL-codes: D14 E21 E52 G11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2017-09
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Working Paper: Household Debt and Monetary Policy: Revealing the Cash-Flow Channel (2017) Downloads
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