Staff Working Paper No. 835
By Fergus Cumming and Lisa Dettling
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.
This is an online appendix to Staff Working Paper No. 835.