, Matilda Kilström
, Jósef Sigurdsson
and Roine Vestman
Martin Flodén: Sveriges Riksbank and CEPR
Matilda Kilström: IIES, Stockholm University
Jósef Sigurdsson: IIES, Stockholm University
Roine Vestman: Stockholm University and SHoF
Abstract: We examine the cash-flow channel of monetary policy, i.e. the effect of monetary policy on spending when households hold debt linked to short-term rates such as adjustable rate mortgages (ARMs). Using registry-based data on Swedish households, we estimate substantial heterogeneity in consumption responses to a change in monetary policy through the cash-flow channel. Our findings imply that monetary policy has a stronger effect on real economic activity when households are highly indebted and have ARMs. For homeowners with a debtto- income ratio of around 3 and ARMs, the estimated response is equivalent to a marginal propensity to consume of 0.5.
48 pages, September 1, 2017
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