Monetary policy and its relationship to birth rates

This research was undertaken by researchers at the Bank of England using administrative data made available via the Office for National Statistics (ONS) Secure Research Service (SRS), which is being expanded and improved with ADR UK funding.

This study examines whether monetary policy pass-through to mortgage rates affects household fertility decisions. The research team was led by Fergus Cumming and Lisa Dettling or the Bank of England. 

The study specifically looked at birth data, Living Costs and Food Survey, and 2001 Census data from the ONS, and administrative data on the universe of new and refinanced mortgages issued by UK lenders from 2005 through 2009. The empirical strategy explores variation in the timing of when families were eligible for a rate adjustment, coupled with the large reductions in interest rates that occurred during the Great Recession. 

Research findings:

• For families on adjustable-rate mortgages, one percent decline in interest rates increases birth rates by five percent.
• On average for the UK, a one percent interest rate decrease increases birth rates by two percent. Reducing interest rates from five percent in summer 2008 to 0.5% by March 2009 lead to 14,500 additional babies being born in 2009.
• Birth rates saw a sustained increase of 7.5% between 2009 and 2012.

The results provide new evidence on the nature of monetary policy transmission and suggest a new mechanism via which mortgage contract structures can affect aggregate demand and supply. 

The research has received extensive national media coverage.