Mortgage Debt and the Consumption Response to Monetary Policy and Housing Wealth

This project empirically examines how wealthy hand-to-mouth households respond to monetary policy through consumption and how housing wealth affects spending. I exploit substantial cross-regional heterogeneity in mortgage-ownership ratios, which serve as a proxy for local mortgage burden and differential exposure to credit constraints. First, using this variation in a shift-share framework combined with high-frequency monetary policy shocks, I show that regions with higher mortgage exposure exhibit significantly stronger consumption responses to interest rate cuts, providing evidence of high marginal propensities to consume among wealthy hand-to-mouth households. Second, adapting the elasticity-based identification strategy of Guren et al. (2021), I construct a new instrumental variable to examine how house price increases affect consumption through wealth effects. While the total effect closely matches their findings, the consumption response to housing wealth is significantly weaker in regions with higher mortgage ownership, suggesting that mortgage-related liquidity constraints dampen the wealth effect of rising asset prices.