Consumption responses to rising mortgage rates: Unpacking the cash-flow channel of monetary policy

Asker Lau Petersen, Andreas Jakobsen, Mads Rahbek Joergensen and Niels Johannesen
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Asker Lau Petersen: Department of Economics, University of Copenhagen
Andreas Jakobsen: Danske Bank, Copenhagen Business School
Mads Rahbek Joergensen: Danske Bank, Department of Economics, University of Copenhagen
Niels Johannesen: Oxford University Centre for Business Taxation, University of Copenhagen

No 26-04, CEBI working paper series from University of Copenhagen. Department of Economics. The Center for Economic Behavior and Inequality (CEBI)

Abstract: We study the transmission of rising interest rates to consumption using granular customerdata from a major bank in Denmark. We show that households with adjustable-ratemortgages 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)
Pages: 32
Date: 2026-05-19
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