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How the Wealth and Credit Channels in Monetary Transmission Affect Consumer Durables and Housing: A Dynamic Stochastic General Equilibrium Approach

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  • Menelik Geremew

    (Kalamazoo College)

Abstract

This study investigates the effects of the wealth and credit channels of monetary transmission mechanisms on consumer durables spending and housing investment. A New Keynesian Dynamic Stochastic General Equilibrium model that incorporates financial frictions is used to derive impulse response functions. The results indicate strong evidence for an amplifying effect of financial frictions on aggregate economic activity. Output, spending on consumer durable goods, housing investment, housing prices, and household wealth respond positively and significantly to a 50-basis point cut in the federal funds rate. The wealth channel is only found to have marginal effects upon household spending.

Suggested Citation

  • Menelik Geremew, 2017. "How the Wealth and Credit Channels in Monetary Transmission Affect Consumer Durables and Housing: A Dynamic Stochastic General Equilibrium Approach," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 43(3), pages 406-425, June.
    • Handle: RePEc:pal:easeco:v:43:y:2017:i:3:d:10.1057_eej.2016.10
    DOI: 10.1057/eej.2016.10
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