Towards a consumer sentiment channel of monetary policy

Sebastian Debes, Johannes Gareis (), Eric Mayer and Sebastian Rüth

No 91, W.E.P. - Würzburg Economic Papers from University of Würzburg, Department of Economics

Abstract: We investigate the role of consumer confidence in the transmission of monetary policy shocks from an empirical and theoretical perspective. Standard VAR based analysis suggests that an empirical measure of consumer confidence drops significantly after a monetary tightening and amplifies the impact of monetary policy on aggregate consumption. Using a behavioral DSGE model, we show that a consumer sentiment channel can account for the empirical findings. In an environment of heterogeneous expectations, which gives rise to the notion of consumer sentiment, innovations to the Federal Funds rate impact on consumer confidence and thereby the broader economy.

Keywords: monetary policy; monetary transmission; consumer sentiment (search for similar items in EconPapers)
JEL-codes: D83 E32 E52 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:wuewep:91

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