Research

Abstract

This paper examines the transmission of monetary policy to household consumption through the lens of Unhedged Interest-Rate Exposures (UREs), which measure the sensitivity of household cash flows to interest-rate changes given when assets and liabilities mature or reprice. Using Danish administrative data, I estimate UREs for the full population and document substantial dispersion and time variation in exposures. I then estimate consumption responses across the URE distribution using local projections. I find a monotonic gradient: households with the most negative exposures cut spending the most after a tightening, while positively exposed households increase spending. A budget-constraint decomposition shows that this gradient appears primarily in saving rather than disposable income, consistent with higher debt repayment among the most negatively exposed households. The gradient is steepest among low-liquidity households and substantially attenuated among those with ample buffers. In contrast, sorting by income, net worth, or liquid assets alone yields little systematic variation. These findings point to the joint distribution of UREs and liquid assets as central to transmission.