Household debt and monetary policy: Revealing the cash-flow channel

Arbeitspapier

We examine the cash-flow channel of monetary policy, i.e. the effect of monetary policy on spending when households hold debt linked to short-term rates such as adjustable rate mortgages (ARMs). Using registry-based data on Swedish households, we estimate substantial heterogeneity in consumption responses to a change in monetary policy through the cash-flow channel. Our findings imply that monetary policy has a stronger effect on real economic activity when households are highly indebted and have ARMs. For homeowners with a debt-to-income ratio of around 3 and ARMs, the estimated response is equivalent to a marginal propensity to consume of 0.5.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Sveriges Riksbank Working Paper Series ; No. 342

Classification and Topics

• Classification: Wirtschaft ; Household Saving; Personal Finance ; Macroeconomics: Consumption; Saving; Wealth ; Monetary Policy ; Portfolio Choice; Investment Decisions
• Subject: Monetary policy ; consumption ; household debt ; variable interest rates ; adjustable rate mortgages

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Flodén, Martin ; Kilström, Matilda ; Jósef Sigurdsson ; Vestman, Roine
• Event: Veröffentlichung
• (who): Sveriges Riksbank
• (where): Stockholm
• (when): 2017

Further information

• Handle: http://hdl.handle.net/10419/189942
• Last update: 10.03.2025, 11:42 AM CET