Monetary Policy and Birth Rates: The Effect of Mortgage Rate Pass-Through on Fertility
48 Pages Posted: 24 Dec 2019
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Monetary Policy and Birth Rates: The Effect of Mortgage Rate Pass-Through on Fertility
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: Suggested Citation