The Distribution of Households' Indebtedness and the Transmission of Monetary Policy

Fergus Cumming and Paul Hubert

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Abstract: We investigate whether the dynamic response of aggregate consumption to monetary policy depends on the distribution of household debt relative to income. Using U.K. loan-level microdata, we propose a novel approach to isolate the fraction of households with a limited ability to smooth consumption. By exploiting time and cross-sectional variation, we show that consumption responds more to monetary policy when the share of highly indebted households is large, but find no state contingency with respect to the overall level of debt-to-income. Our results highlight the role of household heterogeneity for understanding monetary transmission to aggregate consumption.

Date: 2023-09-13
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Published in Review of Economics and Statistics, 2023, 105 (5), pp.1304-1313. ⟨10.1162/rest_a_01094⟩

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Related works:
Journal Article: The Distribution of Households' Indebtedness and the Transmission of Monetary Policy (2023)
Working Paper: The Distribution of Households' Indebtedness and the Transmission of Monetary Policy (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04523722

DOI: 10.1162/rest_a_01094

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