HKC05 - Household Portfolios, Corporate Leverage, and the Supply Side of Monetary Policy

Charles Goodhart, M. Udara Peiris, Dimitrios Tsomocos and Xuan Wang
Additional contact information
Charles Goodhart: London School of Economics and CEPR
M. Udara Peiris: Department of Economics, Oberlin College, https://www.oberlin.edu/arts-and-sciences/departments/economics
Dimitrios Tsomocos: University of Oxford
Xuan Wang: Vrije Universiteit Amsterdam and Tinbergen Institute

No 2602, Oberlin College Kasper Economics and Business Working Papers Series from Oberlin College, Department of Economics

Abstract: Corporate borrowing creates safe claims for some households and concentrates residual risk in equity for others. This portfolio heterogeneity drives a supply-side channel through which corporate leverage conditions monetary transmission. Tightening erodes equity holders’ wealth while safe-asset holders are cushioned; the resulting income effect makes aggregate labor fall more at high leverage, raising the sacrifice ratio. A static model yields a closed-form hump in leverage, with the US range on the rising side, disciplined by Survey of Consumer Finances portfolio shares. A calibrated dynamic model roughly doubles the sacrifice ratio, and US local projections agree in sign, shape, and timing.

Keywords: Household heterogeneity; Monetary policy; Corporate leverage; Phillips curve; Labor supply (search for similar items in EconPapers)
JEL-codes: E31 E32 E52 G11 G51 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2026-06-30
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