Monetary Policy and Birth Rates: The Effect of Mortgage Rate Pass-through on Fertility

Fergus Cumming, Bank of England and Lisa Dettling, Federal Reserve Board

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 UK and US. We estimate that each one percentage point drop in the policy rate increased birth rates amongst households eligible for a rate adjustment by three percent. 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.