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Housing Debt and the Transmission of Monetary Policy

Author

Listed:
  • Paolo Surico

    (London Business School)

  • Clodomiro Ferreira

    (European University Institute)

  • James Cloyne

    (Bank of England)

Abstract

In response to an unanticipated change in interest rates, households with mortgage debt adjust markedly their expenditure, especially on durable goods, renters react to a lesser extent and outright home-owners do not react at all. All housing tenure groups experience a significant change in disposable income (over and above the direct impact on mortgage repayments). The response of house prices is sizable, driving a significant adjustment in loan-to-income ratios but little change in loan-to-value ratios. A simple collateral constraint model augmented with durable goods and renters generates predictions consistent with these novel empirical findings and suggests that heterogeneity in housing debt positions plays an important role in the transmission of monetary policy.

Suggested Citation

  • Paolo Surico & Clodomiro Ferreira & James Cloyne, 2015. "Housing Debt and the Transmission of Monetary Policy," 2015 Meeting Papers 629, Society for Economic Dynamics.
    • Handle: RePEc:red:sed015:629
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    References listed on IDEAS

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    2. Egan, Paul & Kenny, Eoin & O'Toole, Conor, 2023. "Interest rate snapback and the impacts on the Irish economy," Papers WP757, Economic and Social Research Institute (ESRI).

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