Monetary Policy, Mortgage Structure, and Household Sentiment: Evidence from the Euro Area

The European Central Bank sets a single policy rate for the entire euro area, but the structure of mortgage rates differs widely across member states, so that the same change in the policy rate can produce different cash-flow pressures depending on the composition of mortgages within a country. I use panel data for 18 euro area countries from 2007–2025 and instrumental variable local projections identified with high-frequency monetary policy surprises to estimate how household sentiment and macroeconomic outcomes respond depending on how exposed mortgage debt in different countries is to adjustable rates. Consumer confidence, assessments of the financial situation, and intentions to make major purchases all decline significantly more in countries that are highly exposed to adjustable-rate mortgages, which is consistent with cash-flow pressure from rising mortgage payments. The heterogeneity in sentiment is concentrated in the pure monetary component of policy surprises rather than in the information component. Durable consumption provides supporting macro evidence, while GDP and total consumption are directionally consistent but imprecisely estimated.