Economic Memos provide insight into the analysis work being performed by Danmarks Nationalbank’s employees. For example, Economic Memos contain background analyses and method descriptions. Economic Memos are primarily targeted at people who already have a knowledge of economic and financial analyses.
The household cash-flow effects of monetary policy in Denmark and the euro area
Since 2022 the European Central Bank and Danmarks Nationalbank have increased their key monetary policy rates at a record pace. This study shows that the pass-through to retail rates has been stronger in Denmark than in the euro area so far. Interest rate fixation periods are shorter in Denmark, debt turnover is higher and Danish households have more debt. Thus, the household cash-flow channel appears to have been stronger in Denmark compared to the euro area.
Key Messages
Monetary policy has a direct impact on households’ disposable income through its impact on interest expenditures and interest income. Consequently, this channel of monetary policy (the cash-flow channel) is a natural starting point for analysing the transmission of monetary policy in Denmark. Due to the Danish fixed exchange rate vis-à-vis the euro, understanding any differences in the transmission between the euro area and Denmark is also of interest. This memo, examining one of the channels of monetary policy, provides the first step towards such an understanding. The memo also contributes with a first-of-its-kind cross-country micro data analysis of the interest rate exposures and balance sheet compositions of Danish and euro area households.
Key chart
Note:
Net interest payments as share of gross disposable income. Interest payments and interest income received are before FISIM allocation. Shaded areas indicate periods with rising monetary policy rates.
Source:
ECB.