The Transmission of Monetary Policy under the Microscope

Holm, Martin Blomhoff; Paul, Pascal; Tischbirek, Andreas

doi:10.24148/wp2020-03

Cited by 16 publications

(30 citation statements)

References 42 publications

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“…Our model has the property that the highest net worth households have no debt and increase their consumption when the nominal interest rate increases but lower net worth households with debt reduce their consumption. This result is consistent with empirical evidence in Cloyne et al (2020) for the U.S. and the U.K. and Holm et al (2020) for Norway.…”

Section: Introductionsupporting

confidence: 91%

“…The peak response of nondurable consumption expenditures of outright homeowners is smaller and has a different sign as compared to homeowners with mortgages in Cloyne et al (2020). Holm et al (2020) find that households who are net borrowers reduce their consumption in response to a tighter monetary policy but that households who are net creditors increase their consumption.…”

Section: Introductionmentioning

confidence: 71%

“…To understand why the sign and the magnitude of the response of disposable income vary with age, consider its three main components -asset income, labor income, and government income. Previous empirical work by Cloyne et al (2020) and Holm et al (2020) has found that the response of labor income to a tighter monetary policy is relatively homogeneous at different wealth levels. Our model has the same property.…”

Section: Responses Of Consumption By Agementioning

confidence: 96%

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Monetary Policy over the Life Cycle

Braun¹,

Ikeda²

2021

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A tighter monetary policy is generally associated with higher real interest rates on deposits and loans, weaker performance of equities and real estate, and slower growth in employment and wages. How does a household's exposure to monetary policy vary with its age? The size and composition of both household income and asset portfolios exhibit large variation over the lifecycle in Japanese data. We formulate an overlapping generations model that reproduces these observations and use it to analyze how household responses to monetary policy shocks vary over the lifecycle. Both the signs and the magnitudes of the responses of a household's net worth, disposable income and consumption depend on its age.

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Section: Introductionsupporting

confidence: 91%

Section: Introductionmentioning

confidence: 71%

Section: Responses Of Consumption By Agementioning

confidence: 96%

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Monetary Policy over the Life Cycle

Braun¹,

Ikeda²

2021

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“…12 See Gornemann et al (2016), McKay and Reis (2016), Kaplan et al (2018), Debortoli and Galí (2018), Auclert (2019), Bilbiie (2019), Ravn and Sterk (forthcoming), Acharya et al (2020), Auclert et al (2020), and Kekre and Lenel (2020). See also Holm et al (2020) for evidence on the transmission of monetary policy through the household portfolio channel.…”

Section: Introductionmentioning

confidence: 99%

Credit Supply, Firms, and Earnings Inequality

et al. 2020

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We study the distributional effects of a monetary policy-induced firm-level credit supply shock on individual wages and employment. To this end, we construct a novel dataset that links worker employment histories to firms' bank credit relationships in Germany. We document that firms in relationships with banks that were more exposed to negative monetary policy rates in 2014 see a relative reduction in credit supply. A negative credit supply shock in turn is associated with lower firm-level average wages and employment. These effects are concentrated among distinct worker groups within firms, with initially lower-paid workers more likely to be fired and initially higher-paid workers more likely to receive wage cuts. At the same time, wages decline by more at initially higher-paying firms. Consequently, wage inequality within and between firms decreases. Our results suggest that monetary policy has important distributional effects in the labor market.

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“…Relatedly, Bilbiie (2019a) shows in an analytic HANK model that amplification occurs only if the ratio of the income of hand-to-mouth households to total income is countercyclical. For empirical evidence on the effects of household heterogeneity on monetary policy, see Almgren et al (2019) and Holm et al (2020).…”

Section: Introductionmentioning

confidence: 99%

The attention trap: Rational inattention, inequality, and fiscal policy

Macaulay

2021

European Economic Review

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I show that if it is costly for households to process information about asset returns, a model with ex-ante identical households features persistent inequality. The steady state has a two-agent structure, with inequality maintained by a complementarity between attention and wealth: wealthy households have stronger incentives to pay attention to asset choices, and so earn higher returns than asset-poor households.Fiscal expansions are less powerful in this model than in a standard model with heterogeneous discount factors, because when an expansion causes poor households to start saving, they also increase their attention. They therefore earn higher interest rates, and so save even more, smoothing the windfall from the policy over a longer time period. I provide evidence for this increase in attention using crossstate variation in uncertainty about savings interest rates in the aftermath of the 2017 Tax Cuts and Jobs Act in the US. The effects of fiscal policy therefore depend not just on the existence of inequality, but also on the cause of that inequality.

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The Transmission of Monetary Policy under the Microscope

Cited by 16 publications

References 42 publications

Monetary Policy over the Life Cycle

Monetary Policy over the Life Cycle

Credit Supply, Firms, and Earnings Inequality

The attention trap: Rational inattention, inequality, and fiscal policy

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