Heterogeneous consumption behaviors and monetary policy in three ASEAN economies

Huu Tuyen Tran ()
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Huu Tuyen Tran: J.E. Cairnes School of Business & Economics - University of Galway

International Economics and Economic Policy, 2024, vol. 21, issue 4, No 5, 817-844

Abstract: Abstract This paper aims to theoretically investigate how the presence of heterogeneous consumption behaviors, namely hand-to-mouth (HtM) and habit formation (HF), affects the monetary policy effectiveness and empirically explore the responses of three Association of Southeast Asian Nations (ASEAN) economies to external shocks. We employ the Bayesian methodology to undertake the Dynamic Stochastic General Equilibrium (DSGE) estimation using quarterly data. Empirical results indicate a HtM parameter of 22% in Indonesia, 34% in the Philippines, and 27% in Thailand, with the HF parameter estimated at around 50%. Given the estimated parameters, a monetary shock would have standard effects on macroeconomic variables. Besides, incorporating HtM consumers into a standard DSGE model amplifies the adverse effects of monetary shock on aggregate consumption/output growth. Also, a higher ratio of HtM consumers exacerbates the negative effects of monetary shock, but it does not influence much the adverse impacts of demand and supply shocks on macroeconomic variables.

Keywords: Hand-to-mouth; Habit formation; Monetary policy; DSGE model; Bayesian estimation (search for similar items in EconPapers)
JEL-codes: D10 D50 E50 E52 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10368-024-00620-0

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