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How Do Interest Rates Affect Consumption? Household Debt and the Role of Asset Prices -- by Angus K. Foulis, Jonathon Hazell, Atif R. Mian, Belinda Tracey
A new academic paper by Foulis, Hazell, Mian, and Tracey examines how interest rate cuts affect household consumption using administrative UK mortgage data and six million household-level natural experiments. The research finds that a 1 percentage point reduction in mortgage rates raises consumption by 3% in the following six months. Crucially, the study concludes that this consumption increase is driven primarily by households borrowing against higher house prices rather than reduced debt servi