The birds, the bees and the Bank? The birth-rate channel of monetary policy

Missed this interesting paper by Bank of England economists published in Dec-2019. They figure that their is a birth rate channel of monetary policy.

In this post on Bank Underground Blog, the authors explain the findings:

Children are expensive. Swings in families’ cash-flow can therefore move the dial on families’ decisions on whether and when to have a baby. For mortgaged families with an adjustable interest rate in 2008, the sharp fall in Bank Rate amounted to a windfall of around £1,000 per quarter in lower mortgage payments. In this post we show that people responded to this cash-flow boost by having more children. In total, we estimate that monetary policy increased the birth rate in the following three years by around 7.5%. That’s around 50,000 extra babies.

Though in US as most mortgages were fixed rate the impact was not as much:

Mortgaged families across the pond in the United States were not so lucky. The prevalence of long-term fixed rate mortgages meant that most households saw few immediate benefits of looser monetary policy, at least in terms of their mortgage payments. Although aggregate birth rates rose in the UK over the period we study, in the US there was actually a Great Recession “baby bust”. Figure 2 shows birth rates in the US and UK, with grey recession bars, and the path of monetary policy shown by the dashed black line. In both countries, birth rates begin to fall almost as soon as the unemployment rate begins to rise, but in the UK that trend is reversed once Bank Rate begins to drop, and families keep more of their take-home pay for themselves.

Figure 2: Birth rates in the UK and US in the Great Recession

Note: Solid lines are seasonally adjusted quarterly birth rates by age-group dated to the quarter of conception and expressed per 1,000 women. The dashed line shows the path of Bank Rate (left column) and the Federal Funds Rate (right column). The grey bar indicates the period in which unemployment increased from its trough to its peak in each country during the Great Recession.

Well, there are several critics of the low interest rate policy as it created all kinds of incentives for risk taking. What about this birth rate channel? Is UK unique in this respect?

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