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Consumption Responses to Rising Mortgage Rates: Unpacking the Cash-Flow Channel of Monetary Policy

Author

Listed:
  • Asger Lau Andersen
  • Andreas Jakobsen
  • Mads Rahbek Jørgensen
  • Niels Johannesen

Abstract

We study the transmission of rising interest rates to consumption using granular customer data from a major bank in Denmark. We show that households with adjustable-rate mortgages 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.

Suggested Citation

  • Asger Lau Andersen & Andreas Jakobsen & Mads Rahbek Jørgensen & Niels Johannesen, 2026. "Consumption Responses to Rising Mortgage Rates: Unpacking the Cash-Flow Channel of Monetary Policy," CESifo Working Paper Series 12748, CESifo.
    • Handle: RePEc:ces:ceswps:_12748
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    Keywords

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    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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