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

Fergus Cumming and Paul Hubert ()

No 20/2019, Sciences Po publications from Sciences Po

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 noevidence that the average level of borrowing relative-to-income of the household sector affects the transmission of monetary policy.

Keywords: Heterogeneity; Distribution; Mortgage debt; State-dependence (search for similar items in EconPapers)
JEL-codes: E21 E52 E58 (search for similar items in EconPapers)
Date: 2019-11
New Economics Papers: this item is included in nep-mac, nep-mon and nep-ure
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Related works:
Working Paper: The role of households’ borrowing constraints in the transmission of monetary policy (2020)
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