The Role of Households’ Borrowing Constraints in the Transmission of Monetary Policy

27 Pages Posted: 24 Dec 2019 Last revised: 18 Jan 2020

See all articles by Fergus Cumming

Fergus Cumming

Bank of England

Paul Hubert

OFCE - Sciences Po; Banque de France

Date Written: December 20, 2019

Abstract

This paper investigates how the transmission of monetary policy to the real economy depends on the distribution of household debt. Using an original loan-level dataset covering the universe of UK mortgages, we assess the effect of monetary shocks on aggregate consumption by exploiting time variation in a measure of the proportion of households close to their borrowing constraint. We find that monetary policy is most potent when there is a large share of constrained households. In contrast, we find no evidence that the average level of borrowing relative-to-income of the household sector affects the transmission of monetary policy.

Keywords: heterogeneity, distributions, mortgage debt, state-dependence

JEL Classification: E21, E52, E58

Suggested Citation

Cumming, Fergus and Hubert, Paul and Hubert, Paul, The Role of Households’ Borrowing Constraints in the Transmission of Monetary Policy (December 20, 2019). Bank of England Working Paper No. 836, December 2019, Available at SSRN: https://ssrn.com/abstract=3508651 or http://dx.doi.org/10.2139/ssrn.3508651

Fergus Cumming (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Paul Hubert

Banque de France ( email )

Paris
France

OFCE - Sciences Po ( email )

10 place de Catalogne
Paris 75014
France

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
103
Abstract Views
591
Rank
469,563
PlumX Metrics