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Mortgage cash-flows and employment

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  • Cumming, Fergus

Abstract

This paper quantifies the impact of the cash-flow channel of monetary policy on employment by combining novel micro datasets with near-universal coverage. When interest rates fall, mortgaged households spend an important share of the extra cash-flow in their local economy, increasing local labor demand. Overall, a reduction in mortgage payments of £1,000 per household leads to a 0.5 percentage point increase in locally non-tradable employment growth over three years, almost entirely driven by the restaurant sector. Employment-growth effects operate through the intensive margin for small establishments, lower death rates for the mid-sized and higher birth rates for the largest outlets.

Suggested Citation

  • Cumming, Fergus, 2022. "Mortgage cash-flows and employment," European Economic Review, Elsevier, vol. 144(C).
    • Handle: RePEc:eee:eecrev:v:144:y:2022:i:c:s0014292121002865
    DOI: 10.1016/j.euroecorev.2021.104019
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    3. Itamar Caspi & Nadav Eshel & Nimrod Segev, 2024. "The Mortgage Cash-Flow Channel: How Rising Interest Rates Impact Household Consumption," Papers 2410.02445, arXiv.org.

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    More about this item

    Keywords

    Employment; Interest rates; Monetary policy; Mortgages;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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