European Central Bank
D-60640 Frankfurt am Main
Institutional Affiliation: European Central Bank
NBER Working Papers and Publications
|January 2020||Household Balance Sheet Channels of Monetary Policy: A Back of the Envelope Calculation for the Euro Area|
with Jiri Slacalek, Giovanni L. Violante: w26630
This paper formulates a back of the envelope approach to study the effects of monetary policy on household consumption expenditures. We analyze several transmission mechanisms operating through direct, partial equilibrium channels—intertemporal substitution and net interest rate exposure—and indirect, general equilibrium channels—net nominal exposure, as well as wealth, collateral and labor income channels. The strength of these forces varies across households depending on their marginal propensities to consume, their balance sheet composition, the sensitivity of their own earnings to fluctuations in aggregate labor income, and the responsiveness of aggregate earnings, asset prices and inflation to monetary policy shocks. We quantify all these channels in the euro area by combining micro d...