Household Consumption Does Not Respond Directly to Interest Rates: Evidence From 10 Macroeconomic Shocks

Edmund Crawley and William L. Gamber
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William L. Gamber: https://www.federalreserve.gov/econres/william-l-gamber.htm

No 2025-021r1, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We estimate how much household spending responds directly to changes in interest rates. We develop a Bayesian procedure that uses the empirical impulse responses to macroeconomic shocks to discipline the consumer block of a HANK model. The procedure can be applied shock-by-shock or pooled jointly. We apply this method in two ways using 10 macroeconomic shocks: a structural model with sticky expectations over both income and interest rates, and a non-parametric estimation of the consumption-to-interest-rate Jacobian. We find no evidence that households respond directly to interest rates at any horizon, leaving essentially no role for a direct interest rate channel.

Keywords: Consumption; HANK; Interest rates; Monetary policy (search for similar items in EconPapers)
JEL-codes: E21 E32 E52 (search for similar items in EconPapers)
Pages: 55 p.
Date: 2025-03-25, Revised 2026-06-04
New Economics Papers: this item is included in nep-dge
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2025-21

DOI: 10.17016/FEDS.2025.021r1

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