MPC heterogeneity and the dynamic response of consumption to monetary policy

Miguel Ampudia, Russell Cooper, Julia Le Blanc and Guozhong Zhu

No 1102, BIS Working Papers from Bank for International Settlements

Abstract: This paper studies how household financial choices affect the impact of monetary policy on consumption. Based on micro data from four major euro area countries, we estimate structural parameters to match moments related to asset market participation rates, portfolio shares and wealth-to-income ratios by education and country. The country specific distributions of the marginal propensity to consume out of income and financial wealth are not degenerate, reflecting, among other factors, costs to both asset market participation and portfolio adjustment. Due to the heterogeneity in consumption responses, monetary policy, operating through its effects on household income and asset market returns, has a differential impact on individuals within and across countries. Generally, poor households respond more to the income variations produced by monetary policy innovations while rich households respond more to policy-induced variations in stock returns. Monetary policy has a larger impact on consumption in Italy and Spain compared to France and Germany. An extension of the model linking mortgage payments to monetary policy strengthens these findings.

Keywords: heterogeneity; marginal propensity to consume; monetary policy (search for similar items in EconPapers)
JEL-codes: E21 E52 (search for similar items in EconPapers)
Date: 2023-05
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mfd and nep-mon
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Related works:
Journal Article: MPC Heterogeneity and the Dynamic Response of Consumption to Monetary Policy (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:1102

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