Abstract This paper examines whether monetary policy pass-through to mortgage interest rates affects household fertility decisions. Our empirical strategy exploits variation in households’ eligibility for a rate adjustment, coupled with the large reductions in the monetary policy rate that occurred during the Great Recession in the U.K. and U.S. We estimate that each one percentage point drop in the policy rate increased birth rates amongst households eligible for a rate adjustment by 3%. 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.

Abstract We investigate whether the dynamic response of aggregate consumption to monetary policy depends on the distribution of household debt relative to income. Using U.K. loan-level microdata, 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.