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Monetary policy and birth rates: the effect of mortgage rate pass-through on fertility

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  • Cumming, Fergus

    (Bank of England)

  • Dettling, Lisa

    (Federal Reserve Board of Governors)

Abstract

This paper examines whether monetary policy pass-through to mortgage rates affects household fertility decisions. Using administrative data on UK mortgages and births, our empirical strategy exploits variation in the timing of when families were eligible for a rate adjustment, coupled with the large reductions in interest rates that occurred during the Great Recession. We estimate that each 1 percentage point drop in the policy rate increased birth rates by 2%. 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 and suggest a new mechanism via which mortgage contract structures can affect aggregate demand and supply.

Suggested Citation

  • Cumming, Fergus & Dettling, Lisa, 2019. "Monetary policy and birth rates: the effect of mortgage rate pass-through on fertility," Bank of England working papers 835, Bank of England.
    • Handle: RePEc:boe:boeewp:0835
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    Cited by:

    1. Cumming, Fergus, 2022. "Mortgage cash-flows and employment," European Economic Review, Elsevier, vol. 144(C).
    2. De Cao, Elisabetta & McCormick, Barry & Nicodemo, Catia, 2022. "Does unemployment worsen babies’ health? A tale of siblings, maternal behaviour, and selection," Journal of Health Economics, Elsevier, vol. 83(C).
    3. Cumming, Fergus & Hubert, Paul, 2022. "House prices, the distribution of household debt and the refinancing channel of monetary policy," Economics Letters, Elsevier, vol. 212(C).
    4. Kim, Jeong Ho (John) & Lee, Heebum & Lee, Sung Kwan, 2022. "Do credit supply shocks affect fertility choices?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 34(C).

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    More about this item

    Keywords

    Mortgages; monetary policy; birth rates; fertility; natality; interest rates;
    All these keywords.

    JEL classification:

    • 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

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