Research

Working Papers

Monetary Policy and Unhedged Interest-Rate Exposures (Draft coming soon)

This paper studies the transmission of monetary policy to household consumption through Unhedged Interest-Rate Exposures (UREs), which measure how sensitive a household’s cash flow is to interest-rate changes once the maturity structure of its assets and liabilities is taken into account. Using Danish administrative data on income, wealth, and mortgage contracts for 2002–2019, I impute consumption and estimate UREs for the full population. I first provide a set of stylised facts on how these exposures are distributed: their level, dispersion, time variation, and their highly asymmetric joint distribution with liquidity.

I then estimate heterogeneous consumption responses to high-frequency-identified monetary policy shocks across the URE distribution. I find a clear, monotonic gradient: households with the most negative exposures cut spending the most after a tightening, while households with positive exposures increase it. In contrast, sorting by income, net worth, or liquid assets reveals little systematic variation. Liquidity mainly matters through its interaction with UREs: among households with similar exposures, those with low liquidity reduce spending more than otherwise comparable, more liquid households. When I include UREs alongside other balance-sheet variables in the same regressions, UREs account for most of the cross-sectional variation in consumption responses, and the additional balance-sheet measures carry little incremental explanatory power. Taken together, the results suggest that the maturity structure of household balance sheets is a central margin of heterogeneity in monetary transmission, and that policymakers should monitor the distribution of UREs when assessing the effects of interest-rate changes.

Presented at: PhD Workshop on Heterogeneous-Agent Macroeconomics, University of Tübingen.