Monetary Policy and Liquidity Constraints: Evidence from the Euro Area

Mattias Almgren, José-Elías Gallegos, John Kramer and Ricardo Lima

American Economic Journal: Macroeconomics, 2022, vol. 14, issue 4, 309-40

Abstract: We quantify the relationship between the response of output to monetary policy shocks and the share of liquidity-constrained households. We do so in the context of the euro area, using a Local Projections Instrumental Variables estimation. We construct an instrument for changes in interest rates from changes in overnight indexed swap rates in a narrow time window around ECB announcements. Monetary policy shocks have heterogeneous effects on output across countries. Using micro data, we show that the elasticity of output to monetary policy shocks is larger in countries that have a larger fraction of households that are liquidity constrained.

JEL-codes: E23 E43 E52 F33 F45 G51 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (23)

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DOI: 10.1257/mac.20200096

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