Monetary Policy When Households Have Debt: New Evidence on The Transmission Mechanism

with James Cloyne (UC Davis) and Paolo Surico (LBS)

Review of Economic Studies, Volume 87(1), 102-129, January 2020

[Link to Journal publication]

Previous version: Bank of Spain DT1813. Media: VoxEU column (2016) , The Economist (2021)

Abstract: Using household survey data for the U.S. and the U.K., we show that the aggregate response of consumption to interest rate changes is driven by households with a mortgage. Outright home-owners do not adjust expenditure at all while renters change their spending but by less than mortgagors. Income rises for all households as interest rate cuts directly affect firm investment and household consumption, boosting aggregate demand. A crucial difference between the housing tenure groups is the composition of their balance sheets: mortgagors hold sizable illiquid assets but little liquid wealth. Our results reveal that general equilibrium effects on household income coupled with balance-sheet-driven heterogeneity in the marginal propensity to consume play a key role in the transmission of monetary policy.


The Heterogeneous Impact of Inflation on Households' Balance Sheets [June 2022] NEW!

with M. Cardoso (BBVA Research), J.M. Leiva (BBVA Research), Galo Nuño (Bank of Spain), Alvaro Ortiz (BBVA Research), Tomasa Rodrigo (BBVA Research) and Sirenia Vazquez (BBVA Research)

Abstract: We identify and study three key channels that shape how inflation affects wealth inequality: (i) the traditional Fisher channel through which inflation redistributes from lenders to borrowers; (ii) a nominal labour income channel through which inflation reduces the real value of sticky wages and benefits; and (iii) a relative consumption channel through which heterogeneous increases in the price of different goods affect people differently depending on their consumption baskets. We then quantify these channels for Spain in 2021 using both public surveys and a novel proprietary bank dataset that includes detailed information on clients’ assets and liabilities, credit and debit card payments, bills and labour related income. Results show that the Fisher and labour income channels are one order of magnitude larger than relative consumption. Middle-aged individuals were roughly unaffected by inflation while older ones suffered the most its consequences.

Monetary Policy, External Finance and Investment [December 2020] conditionally accepted @ JEEA

with James Cloyne (UC Davis), Maren Froemel (Bank of England) and Paolo Surico (LBS)

Other versions: NBER wp 25366 and Bank of Spain DT1911.

Abstract: In response to a change in interest rates, younger firms not paying dividends adjust both their capital expenditure and borrowing significantly more than older firms paying dividends. The reason is that the debt of younger non-dividend payers is far more sensitive to fluctuations in collateral values, which are significantly affected by monetary policy. The results are robust to a wide range of possible confounding factors. Other channels, including movements in interest payments, product demand, profitability and mark-ups, are also significant but seem unlikely to explain the heterogeneity in the response of capital expenditure. Our findings suggest that financial frictions play a significant role in the transmission of monetary policy to investment.


Housing Tenure and Household Debt: Life-Cycle Dynamics During a Boom and Bust Draft coming soon!

with Julio Gálvez (Bank of Spain) and Myroslav Pidkuyko (Bank of Spain)

Some results using Spanish data can be found in Ocasional Documents no. 2013 - Recuadro 2 - Bank of Spain (in spanish)

Firms Strategic Competition and The Dynamics of Reputation: The Case of an On-line Market

(based on previous work with Ema Iancu , Konjunkturinstitutet )

Who Pays for Inflation? Welfare Costs of Inflation With heterogeneous Households (based on my master thesis at CEMFI)


Bank Lending Channel and the Aggregate Effects of Sovereing Liquidity Shocks (2019)

with Andrea Gazzani (Banca d'Italia) and Alejandro Vicondoa (PUC Chile)

Variance-Covariance Estimation with Spatial and Serial Correlation: IV in an Un-Balance Panel (2018)

Democratic Monetary Policy Rules [2019]

with J. Fernández-Villaverde (UPenn), J. Gálvez (Bank of Spain), S. Hurtado (Bank of Spain) and G. Nuño (Bank of Spain)

Assigned To Your Choice? A Short Note on Matching Researchers to Workspaces [2010]

Helicopter Money Drop: The Role of Expectations

with Hernán Seoane (U. Carlos III)


"Optimal Monetary Policy in HANK Economies"

by S. Acharya, E. Challe and K. Dogra

BdF-CEPR Heterogeneous Agents or Heterogeneous Information (December 2019)


"Banking Supervision, Monetary Policy and Risk Taking: Big Data Evidence from 15 Credit Registers"

by C. Altavilla, M. Boucinha, J.L Peydró and F. Smets

ESSIM (May 2019)


"Sovereign Default in a Monetary Union"

by Sergio de Ferra and Federica Romei

12th Nordic Summer Symposium in Macro (August 2018)


"Housing Market Freezes, Deleveraging and Aggregate Demand"

by Christian Bayer and Ralph Luetticke

Housing, Housing Credit and the Macroeconomy (September 2017)



Clear, Consistent and Engaging: ECB Monetary Policy Communication in a Changing World

ECB Strategy Review. Occasional paper Series No. 274. September 2021

El Mercado de la Vivienda en España entre 2014 y 2019 [english version here]

Documentos Ocasionales no. 2013 - Banco de España. June 2020

Research Feature: Monetary Policy, Corporate Finance and Investment

Research features. Banco de España. Fall 2019

Evolución Reciente del Mercado de Crédito al Consumo en España [english version here]

Informe Trimestral - Banco de España. September 2018