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

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  • Fergus Cumming
  • Paul Hubert

    (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - 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.

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  • Fergus Cumming & Paul Hubert, 2019. "The role of households' borrowing constraints in the transmission of monetary policy," SciencePo Working papers Main hal-03403257, HAL.
    • Handle: RePEc:hal:spmain:hal-03403257
    Note: View the original document on HAL open archive server: https://hal-sciencespo.archives-ouvertes.fr/hal-03403257
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    1. Giacomo Rella, 2021. "The Fed, housing and household debt over time," Department of Economics University of Siena 850, Department of Economics, University of Siena.
    2. Lieb, Lenard & Schuffels, Johannes, 2020. "Inflation expectations and consumer spending: the role of household balance sheets (RM/19/022-revised-)," Research Memorandum 006, Maastricht University, Graduate School of Business and Economics (GSBE).

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    More about this item

    Keywords

    Heterogeneity; Distribution; Mortgage debt; State-dependence;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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