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

48 Pages Posted: 24 Dec 2019

See all articles by Fergus Cumming

Fergus Cumming

Bank of England

Lisa J. Dettling

Board of Governors of the Federal Reserve System

Multiple version iconThere are 2 versions of this paper

Date Written: December 20, 2019

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.

Keywords: mortgages, monetary policy, birth rates, fertility, natality, interest rates

JEL Classification: E43, E52, J13

Suggested Citation

Cumming, Fergus and Dettling, Lisa J., Monetary Policy and Birth Rates: The Effect of Mortgage Rate Pass-Through on Fertility (December 20, 2019). Bank of England Working Paper No. 835, December 2019, Available at SSRN: https://ssrn.com/abstract=3508649

Fergus Cumming (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Lisa J. Dettling

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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