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Disaggregating Household Sensitivity to Monetary Policy by Expenditure Category

Author

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  • Tony Chernis
  • Corinne Luu

Abstract

Because the Bank of Canada has started withdrawing monetary stimulus, monitoring the transmission of these changes to monetary policy will be important. Subcomponents of consumption and housing will likely respond differently to a monetary policy tightening, both in terms of the aggregate effect and timing. These differences may be informative for monitoring household responsiveness to, and tracking the transmission of, changes to monetary policy. The authors therefore estimate an empirical model to measure the effects of monetary policy shocks on household expenditures. We find that monetary policy shocks will have a greater, and generally quicker, effect on residential investment than they do on consumption. On average across interest-rate-sensitive subcomponents of real household expenditure, most of the impact is felt on the level after about seven quarters. For residential investment, new construction and ownership transfer costs are affected the most. For consumption, durables and items thought to be highly discretionary (e.g., food and beverages away from home and accommodation services), appear most sensitive to monetary policy shocks.

Suggested Citation

  • Tony Chernis & Corinne Luu, 2018. "Disaggregating Household Sensitivity to Monetary Policy by Expenditure Category," Staff Analytical Notes 2018-32, Bank of Canada.
  • Handle: RePEc:bca:bocsan:18-32
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    References listed on IDEAS

    as
    1. James Cloyne & Patrick Hürtgen, 2016. "The Macroeconomic Effects of Monetary Policy: A New Measure for the United Kingdom," American Economic Journal: Macroeconomics, American Economic Association, vol. 8(4), pages 75-102, October.
    2. Champagne, Julien & Sekkel, Rodrigo, 2018. "Changes in monetary regimes and the identification of monetary policy shocks: Narrative evidence from Canada," Journal of Monetary Economics, Elsevier, vol. 99(C), pages 72-87.
    3. Ramey, V.A., 2016. "Macroeconomic Shocks and Their Propagation," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 71-162, Elsevier.
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    Cited by:

    1. Allayioti, Anastasia & Gόrnicka, Lucyna & Holton, Sarah & Martínez Hernández, Catalina, 2024. "Monetary policy pass-through to consumer prices: evidence from granular price data," Working Paper Series 3003, European Central Bank.

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    More about this item

    Keywords

    Business fluctuations and cycles; Domestic demand and components; Econometric and statistical methods; Housing; Interest rates; Recent economic and financial developments; Transmission of monetary policy;
    All these keywords.

    JEL classification:

    • E - Macroeconomics and Monetary Economics
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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