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

Author

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

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

  • Andersen, Asger Lau & Jakobsen, Andreas & Rahbek Jørgensen, Mads & Johannesen, Niels, 2026. "Consumption responses to rising mortgage rates: Unpacking the cash-flow channel of monetary policy," CEPR Discussion Papers 21643, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:21643
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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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