The Role of Households’ Borrowing Constraints in the Transmission of Monetary Policy

Cumming, Fergus; Hubert, Philippe

doi:10.2139/ssrn.3508651

Cited by 3 publications

(2 citation statements)

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“…Cloyne et al (2020) show that household balance sheet composition in the US and the UK alters the spending response to changes in the nominal interest rate, suggesting differing marginal propensities to consume between home owners with mortgages (high) and outright owners (low). Cumming and Hubert (2019) show a positive relation between the share of financially constrained (adjustable rate) mortgage holders and aggregate consumption responses to monetary policy shocks. While in the US and the UK interest on mortgages is predominantly paid at adjustable rates, interest in the Netherlands is predominantly paid at rates fixed for more than one year (83% of the total volume (DNB 2020)).…”

Section: Balance Sheet Compositionmentioning

confidence: 95%

Inflation expectations and consumer spending: the role of household balance sheets

Lieb

Schuffels

2022

Empir Econ

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Research interest in the reaction of consumption to expected inflation has increased in recent years due to efforts by central banks to kick-start demand by steering inflation expectations. We contribute to this literature by analysing whether various components of households’ balance sheets determine how consumption reacts to expected inflation. Two channels in particular are conceivable: an increase in inflation expectations can raise consumption through direct increases in expected real wealth, e.g. for households with nominal financial liabilities. By affecting the real interest rate, expected inflation can interact with wealth if only those households can adapt their consumption to current real interest rates that are not budget-constrained or sufficiently liquid to shift funds between consumption and savings. We investigate these channels empirically using household-level information on balance sheets, durable consumption and inflation expectations from the Dutch Central Bank’s Household Survey. We find that investments in risky assets as well as net worth moderates the relation between expected inflation and durable spending decisions. The net worth effect is most pronounced for households with fixed interest rate mortgages.

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Section: Balance Sheet Compositionmentioning

confidence: 95%

Inflation expectations and consumer spending: the role of household balance sheets

Lieb

Schuffels

2022

Empir Econ

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“…Cloyne et al (2020) show that household balance sheet composition in the US and the UK alters the spending response to changes in the nominal interest rate, suggesting differing marginal propensities to consume between home owners with mortgages (high) and outright owners (low). Cumming & Hubert (2019) show a positive relation between the share of financially constrained (adjustable rate) mortgage holders and aggregate consumption responses to monetary policy shocks. While in the US and the UK interest on mortgages is predominantly paid at adjustable rates, interest in the Netherlands is predominantly paid at rates fixed for more than one year (83% of the total volume (DNB, 2020)).…”

Section: Balance Sheet Compositionmentioning

confidence: 95%

Inflation expectations and consumer spending: the role of household balance sheets (RM/19/022-revised)

Lieb¹,

Schuffels²

2020

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Inflation Expectations and Consumer Spending: The Role of Household Balance Sheets

Lieb

Schuffels

2019

SSRN Journal

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Research interest in the reaction of consumption to expected inflation has increased sharply in recent years due to efforts by central banks to kick-start demand through higher inflation expectations. We contribute to this literature by analyzing whether various components of households' balance sheets determine how consumption reacts to expected inflation. Many channels are conceivable: an increase in inflation expectations can raise consumption through direct increases in expected real wealth, e.g. for households with nominal financial liabilities. By affecting the real interest rate, expected inflation can interact with wealth if only those households can adapt their consumption to current real interest rates that are not budget constrained or sufficiently liquid to shift funds between consumption and savings. We use household-level information on balance sheets, vehicle expenditures and inflation expectations from the Dutch Central Bank's Household Survey. We find evidence for a relation between a household's expected inflation and the probability to have positive expenditures on durables. This effect is stronger for households with low net worth. We find no evidence of such effects on the amount of durable expenditures.

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The Role of Households’ Borrowing Constraints in the Transmission of Monetary Policy

Cited by 3 publications

References 62 publications

Inflation expectations and consumer spending: the role of household balance sheets

Inflation expectations and consumer spending: the role of household balance sheets

Inflation expectations and consumer spending: the role of household balance sheets (RM/19/022-revised)

Inflation Expectations and Consumer Spending: The Role of Household Balance Sheets

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