The interest rate exposure of euro area households

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This study estimates the "unhedged interest rate exposure" (URE) of euro area households, a welfare metric that measures exposure to changes in real interest rates and reflects the direct gains and losses in interest income. URE is defined as the difference between maturing assets and maturing liabilities at a specific time. The analysis explores URE distributions across net wealth, income, age, and housing status for the euro area and individual countries, revealing significant heterogeneity. The median household in the euro area shows a positive interest rate exposure, suggesting potential gains from rising interest rates. In contrast, households at the lower end of the wealth and income spectrum, younger households, and mortgagors exhibit negative exposure, indicating potential losses from increased rates. Variations among countries largely stem from differing prevalence of adjustable-rate mortgages (ARMs), with those having a high prevalence showing skewed distributions toward negative exposure. The financial impact of monetary policy shocks can be considerable for households with negative exposure, especially mortgagors, paralleling the effects of changes in house prices. Understanding these distributions is crucial for grasping public sentiment regarding monetary policy and central bank actions.