The Mortgage Debt Channel of Monetary Policy when Mortgages are Liquid

Matthew Elias; Christian Gillitzer; Greg Kaplan; Gianni La Cava; Nalini V. Prasad

doi:10.3386/w34461

The Mortgage Debt Channel of Monetary Policy when Mortgages are Liquid

Matthew Elias, Christian Gillitzer, Greg Kaplan, Gianni La Cava & Nalini V. Prasad

Working Paper 34461

DOI 10.3386/w34461

Issue Date November 2025

We examine what is widely considered to be one of the strongest channels of monetary policy transmission into household spending – the effect of changes in mortgage payments when mortgage rates are linked to the short-term policy rate. Using bank transactions data from Australia, we analyze a cumulative 425 basis point increase in the central bank policy rate, which caused mortgage repayments for homeowners with adjustable-rate mortgages to increase by $13,800. We find little change in the spending of adjustable-rate mortgagors relative to fixed rate mortgagors. This is because adjustable-rate mortgages come with redraw facilities that make mortgages liquid, and households had large excess buffers due to pandemic-era transfer programs and restrictions on spending. Our findings demonstrate that the direct effects of a monetary policy tightening on household spending need not be large.

We would like to thank Christopher Waller, Benjamin Born, James Cloyne and seminar participants at the Reserve Bank of Australia, the Australian Conference of Economists 2024, the OzMac Workshop 2024, the Continuing Education in Macroeconomics Workshop 2024, the Women in Macroeconomics Workshop 2024, the Waller Conference at UNSW and the 2025 Melbourne Annual Macro Policy Meeting. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.

Greg Kaplan
Disclosure Statement

Greg Kaplan

Current as of 3 April 2025

Current primary appointment:

• Alvin H. Baum Professor, Kenneth C. Griffin Department of Economics and the College, University of Chicago

Current additional appointments

• Board Chair, Research Committee Chair and Co-Founder, e61 Institute

• Lead Editor, Journal of Political Economy Macroeconomics

• Co-Director, Macroeconomics Initiative, Becker Friedman Institute

• Board Member, National Data Advisory Council, Australian Office of National Data Commissioner

• Board Member, University of Chicago Press

• Advisory Board Member, Opportunity and Inclusive Growth Institute, Federal Reserve Bank of Minneapolis

• Research Council, Becker Friedman Institute

• Advisory Board Member, Pella Funds Management

• Consultant, Federal Reserve Bank of Chicago

• Research Associate, National Bureau of Economic Research

• International Research Fellow, Institute for Fiscal Studies

Previous additional appointments in last five years

• Visiting Professor, Sydney University

• Visiting Professor, University of New South Wales

• Visiting Professor, Macquarie University

Organizations from which I have received cumulative amounts >= USD10,000 in last five years

• e61 Institute

• Becker Friedman Institute

• Federal Reserve Bank of Chicago

• Federal Reserve Bank of Minneapolis

• Sydney University

• University of New South Wales

• Accenture USA

• Accenture Australia

• W.W. Norton and Company

• Mandala Partners
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Matthew Elias, Christian Gillitzer, Greg Kaplan, Gianni La Cava, and Nalini V. Prasad, "The Mortgage Debt Channel of Monetary Policy when Mortgages are Liquid," NBER Working Paper 34461 (2025), https://doi.org/10.3386/w34461.

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The Mortgage Debt Channel of Monetary Policy when Mortgages are Liquid

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