Monetary Policy and Birth Rates: The Effect of Mortgage Rate Pass-Through on Fertility

Fergus Cumming and Lisa Dettling

No 2020-002, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This paper examines whether monetary policy pass-through to mortgage interest rates affects household fertility decisions. Using administrative data on mortgages and births in the UK, our empirical strategy exploits variation in the timing of when families were eligible for a rate adjustment, coupled with the large reductions in the monetary policy rate that occurred during the Great Recession. We estimate that each 1 percentage point drop in the policy rate increased birth rates by 2 percent. In aggregate, this pass-through of accommodative monetary policy to mortgage rates was sufficiently large to outweigh the headwinds of the Great Recession and prevent a “baby bust” in the UK, in contrast to the US. Our results provide new evidence on the nature of monetary policy transmission to households and suggest a new mechanism via which mortgage contract structures can affect both aggregate demand and supply.

Keywords: Mortgages; Monetary policy; Birth rates; Fertility; Natality; Interest rates (search for similar items in EconPapers)
JEL-codes: D12 E43 E52 J13 R31 (search for similar items in EconPapers)
Pages: 57 p.
Date: 2020-01-03
New Economics Papers: this item is included in nep-eur, nep-mac, nep-mon and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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https://www.federalreserve.gov/econres/feds/files/2020002pap.pdf (application/pdf)

Related works:
Journal Article: Monetary Policy and Birth Rates: The Effect of Mortgage Rate Pass-Through on Fertility (2024)
Working Paper: Monetary policy and birth rates: the effect of mortgage rate pass-through on fertility (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2020-02

DOI: 10.17016/FEDS.2020.002

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