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Monetary Policy and Birth Rates: The Effect of Mortgage Rate Pass-Through on Fertility



This paper examines whether monetary policy pass-through to mortgage interest rates affects household fertility decisions. Using administrative data on mortgages and births in the UK, our empirical strategy exploits variation in the timing of when families were eligible for a rate adjustment, coupled with the large reductions in the monetary policy rate that occurred during the Great Recession. We estimate that each 1 percentage point drop in the policy rate increased birth rates by 2 percent. In aggregate, this pass-through of accommodative monetary policy to mortgage rates was sufficiently large to outweigh the headwinds of the Great Recession and prevent a “baby bust” in the UK, in contrast to the US. Our results provide new evidence on the nature of monetary policy transmission to households and suggest a new mechanism via which mortgage contract structures can affect both aggregate demand and supply.

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  • , 2020. "Monetary Policy and Birth Rates: The Effect of Mortgage Rate Pass-Through on Fertility," Finance and Economics Discussion Series 2020-002, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgfe:2020-02
    DOI: 10.17016/FEDS.2020.002

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    References listed on IDEAS

    1. Dettling, Lisa J. & Kearney, Melissa S., 2014. "House prices and birth rates: The impact of the real estate market on the decision to have a baby," Journal of Public Economics, Elsevier, vol. 110(C), pages 82-100.
    2. Alma Cohen & Rajeev Dehejia & Dmitri Romanov, 2013. "Financial Incentives and Fertility," The Review of Economics and Statistics, MIT Press, vol. 95(1), pages 1-20, March.
    3. James Cloyne & Kilian Huber & Ethan Ilzetzki & Henrik Kleven, 2019. "The Effect of House Prices on Household Borrowing: A New Approach," American Economic Review, American Economic Association, vol. 109(6), pages 2104-2136, June.
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    5. Helen Hughson & Gianni La Cava & Paul Ryan & Penelope Smith, 2016. "The Household Cash Flow Channel of Monetary Policy," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 21-30, September.
    6. Melissa S. Kearney & Riley Wilson, 2018. "Male Earnings, Marriageable Men, and Nonmarital Fertility: Evidence from the Fracking Boom," The Review of Economics and Statistics, MIT Press, vol. 100(4), pages 678-690, October.
    7. Chakraborty, Chiranjit & Gimpelewicz, Mariana & Uluc, Arzu, 2017. "A tiger by the tail: estimating the UK mortgage market vulnerabilities from loan-level data," Bank of England working papers 703, Bank of England.
    8. Cumming, Fergus, 2018. "Mortgages, cash-flow shocks and local employment," Bank of England working papers 773, Bank of England.
    9. Sommer, Kamila, 2016. "Fertility choice in a life cycle model with idiosyncratic uninsurable earnings risk," Journal of Monetary Economics, Elsevier, vol. 83(C), pages 27-38.
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    More about this item


    Mortgages; Monetary policy; Birth rates; Fertility; Natality; Interest rates;

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • 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
    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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