Monetary Policy According to Households: Perceptions, Reactions, and Channels

Francesco Grigoli, Damiano Sandri, Yuriy Gorodnichenko and Olivier Coibion

No 21408, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper studies how households perceive the transmission of monetary policy and how these perceptions affect their decisions. Using a large-scale survey of over 25,000 U.S. households combined with randomized information treatments, we measure how households expect changes in the federal funds rate to affect economic conditions and their own behavior. Households report that higher interest rates lead them to reduce their spending, particularly on durable goods. However, the mechanisms underlying this response differ markedly from those in standard macroeconomic models. Respondents expect monetary tightening to raise borrowing costs and inflation. In turn, consumption function estimates identified using information treatments reveal that households respond to higher expected inflation by reducing consumption. Household inflation expectations also emerge as a central driver of portfolio reallocations following monetary policy changes.

Keywords: Monetary policy transmission; Household expectations; Inflation expectations; Consumption; Household portfolio choice (search for similar items in EconPapers)
JEL-codes: E3 E4 E5 (search for similar items in EconPapers)
Date: 2026-04
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Related works:
Working Paper: Monetary Policy According to Households: Perceptions, Reactions, and Channels (2026)
Working Paper: Monetary Policy According to Households: Perceptions, Reactions and Channels (2026)
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