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We investigate whether the dynamic response of aggregate consumption to monetary policy depends on the distribution of household debt relative to income. Using UK loan-level micro-data, we propose a novel approach to isolate the fraction of households with a limited ability to smooth consumption. By exploiting time and cross-sectional variation, we show that consumption responds more to monetary policy when the share of highly-indebted households is large, but find no state-contingency with respect to the overall level of debt-to-income. Our results highlight the role of household heterogeneity for understanding monetary transmission to aggregate consumption.

This paper examines whether monetary policy pass-through to mortgage interest rates affects household fertility decisions. Using administrative data on mortgages and births in the UK, our empirical strategy exploits variation in the timing of when families were eligible for a rate adjustment, coupled with the large reductions in the monetary policy rate that occurred during the Great Recession. We estimate that each 1 percentage point drop in the policy rate increased birth rates by 2 percent. 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 to households and suggest a new mechanism via which mortgage contract structures can affect both aggregate demand and supply.

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.

This paper quantifies the local impact of monetary policy through the cash-flow channel during the Crisis by combining novel micro datasets with near-universal coverage of UK mortgages and employment. I estimate that a reduction in mortgage payments equivalent to 1% of household income led to around a 5 percentage point increase in employment growth in non-tradable businesses the following year. But the spatial distribution of mortgage and labour market structures resulted in significant heterogeneity of this effect across the country. Taken at face value, the estimates suggest that the overall effect of accommodative monetary policy on total employment growth in 2010 varied by around 1.5 percentage points across regions.