Monetary Policy Transmission to Consumer Financial Stress and Durable Consumption

We examine the effects of monetary policy on household self-assessed financial stress
and durable consumption using panel data from eighteen annual waves of the British
Household Panel Survey. For identification, we exploit random variation in household
exposure to interest rates generated by the random timing of household interview dates
with respect to policy rate changes. After accounting for household and month-year-of-
interview fixed effects, we uncover significant heterogeneities in the way monetary policy
affects household groups that differ in housing and saving status. In particular, an increase
in the interest rate induces financial stress among mortgagors and renters, while it lessens
financial stress of savers. We find symmetric effects on durable consumption, mainly driven
by mortgagors with high debt burden or limited access to liquidity and younger renters
who are prospective home buyers.