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Does Household Behaviour Depend on Monetary Policy? Evidence from Cyprus

Nektarios Michail, Agorasti Patronidou () and Ioanna Evangelou ()
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Agorasti Patronidou: Central Bank of Cyprus
Ioanna Evangelou: Central Bank of Cyprus

No 2021-01, Working Papers from Central Bank of Cyprus

Abstract: The paper examines whether euro area monetary policy was able to affect the consumption and investment behaviour of households in Cyprus, using household level data for Cyprus obtained from the Household Finance and Consumption Survey. Using a panel analysis, we find that monetary policy only affects the deposit and consumption behaviour of indebted households, suggesting that the main transmission channel of monetary policy is via the change in loan instalments. Households without loans appear to be, in general, unaffected by monetary policy changes. This suggests that monetary policy can paradoxically be less effective when most needed, as, in times of financial stress, households tend to focus on deleveraging. Additional avenues with regards to the potential impact of monetary policy on investing behaviour are also explored.

Keywords: HFCS; survey; monetary policy; interest rate; households (search for similar items in EconPapers)
JEL-codes: C83 E52 G50 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2021-10
New Economics Papers: this item is included in nep-cba, nep-eec and nep-mon
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