The role of households’ borrowing constraints in the transmission of monetary policy

Staff working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on 20 December 2019

Staff Working Paper No. 836

By Fergus Cumming and Paul Hubert

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 version was updated in January 2020.

PDFThe role of households’ borrowing constraints in the transmission of monetary policy

This is an online appendix to Staff Working Paper No. 836.

PDFAppendix to The role of households’ borrowing constraints in the transmission of monetary policy

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