The Bank of England is reporting that lower interest rates raise the prices of things bought with borrowed money. Well, thanks for that, would never have thought it. But then they go on to be a bit more subtle, lower interest rates create babies:
Researchers at the UK’s central bank set out to investigate whether its policy and mortgage rates can impact couples’ decisions on whether or not to have children.
They found that cutting interest rates appeared to stimulate more than just the economy, with an extra 14,500 babies born in 2009 after it slashed borrowing costs during the global financial crisis.
“Overall, our paper suggests monetary policy can have spillover effects on a host of economic and social outcomes,” researchers concluded.
Hmm, well, maybe recessions create more free time to bonk? Or might as well have a kid as that promotion’s not going to happen? Or, well:
They estimated that for each one percentage point fall in benchmark interest rates, birth rates rose by 5% among families paying adjustable-rate mortgages. These are mortgages which go up or down along with the Bank of England’s Bank Rate.
“On average for the UK, a one-percentage-point decline in the policy rate increases birth rates by 2%,” they said in the paper.
In contrast with Britain, the birth rate in the United States fell during the period studied by the researchers. This was linked to the prevalence of fixed-rate mortgages in the United States and the impact of property price declines.
Ahhh, opposite effect from same prime cause. But a different structure in the market leading to that different outcome. The UK is mostly floating rate mortgages, the US mostly fixed.
Thus a cut in UK interest rates leads to a rise in disposable income for those with a mortgage. In the US it doesn’t – families there are left only exposed to the increased uncertainty about their total income. Thus the different effect upon fertility.
A nice bit of reasoning there. Of course, it’s not the whole story, not at all. For the higher prices engendered by the lower interest rates will, presumably, slow household formation and thus reduce the number of children. For note the BoE is talking only about those who already have a mortgage.
Over time I’d expect the second effect, formation, to outweigh the first, disposable income, one.