Abstract: 

Household beliefs about the macroeconomy play a central role in the transmission of monetary policy. I study how rising interest rates affect mortgage borrowers’ macroeconomic beliefs, using detailed Finnish data that link administrative mortgage records with survey-based beliefs. The sharp increase in the 12-month Euribor in 2022 provides two sources of exogenous variation: a general rise in market rates and the household-specific timing of mortgage payment adjustments. Despite facing the same macroeconomic shock, I find that after rates rise mortgage borrowers become more pessimistic about general borrowing conditions, and they predict lower inflation than homeowners without mortgages. These shifts are driven by two complementary mechanisms: an attention-based mechanism, where holding a mortgage creates stronger incentives to follow macroeconomic developments, and an experience-based mechanism, where households extrapolate from their own higher mortgage payments to the general borrowing environment. Mortgage borrowers’ forecasts about inflation become more accurate relative to homeowners without mortgages after the Euribor increase, indicating that monetary policy shapes macroeconomic expectations through the adjustable-rate loan channel and improves the accuracy of household beliefs.