Has Higher Household Indebtedness Weakened Monetary Policy Transmission?

By Gaston Gelos, Tommaso Mancini Griffoli, Machiko Narita, Federico Grinberg, Umang Rawat, Shujaat Khan

January 15, 2019

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Gaston Gelos, Tommaso Mancini Griffoli, Machiko Narita, Federico Grinberg, Umang Rawat, and Shujaat Khan. Has Higher Household Indebtedness Weakened Monetary Policy Transmission?, (USA: International Monetary Fund, 2019) accessed December 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Has monetary policy in advanced economies been less effective since the global financial crisis because of deteriorating household balance sheets? This paper examines the question using household data from the United States. It compares the responsiveness of household consumption to monetary policy shocks in the pre- and post-crisis periods, relating changes in monetary transmission to changes in household indebtedness and liquidity. The results show that the responsiveness of household consumption has diminished since the crisis. However, household balance sheets are not the culprit. Households with higher debt levels and lower shares of liquid assets are the most responsive to monetary policy, and the share of these households in the population grew. Other factors, such as economic uncertainty, appear to have played a bigger role in the decline of households’ responsiveness to monetary policy.

Subject: Asset and liability management, Consumption, Debt burden, External debt, Household consumption, Income, Liquidity, National accounts

Keywords: Basis point, Consumption, Consumption growth, Consumption response, Debt burden, Global, Household consumption, Households, Income, Leverage, Liquidity, Monetary policy, Monetary policy effectiveness, Monetary policy maker, Monetary policy shock, Monetary policy transmission, Real estate, Transmission, WP

Publication Details

Pages:

33
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2019/011
Stock No:

WPIEA2019011
ISBN:

9781484393208
ISSN:

1018-5941

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