The Mortgage Cash Flow Channel of Monetary Policy Transmission: A Tale of Two Countries
How does monetary policy affect household consumption? This paper offers insights into the mortgage cash flow effect—that is, the change in consumption due to a change in mortgage rates—by comparing monetary policy transmission in two countries with different mortgage market institutions. The countries studied are Spain, where most households hold true adjustable-rate mortgages (ARMs) with automatic annual resets, and the United States, where the mortgage market is dominated by fixed-rate mortgages (FRMs) and where ARMs typically have an extended initial fixed term of 5 to 10 years. The authors use data from the Encuesta de Presupuestos Familiares–Base 2006 for Spain and the Consumer Expenditure Survey for the United States to empirically analyze the mortgage cash flow effect from 2007 to 2018.