Unconventional monetary policy and household heterogeneity: evidence from QE shocks
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Date
2024
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Abstract
This paper examines the heterogeneous effects of Large-Scale Asset Purchases (LSAP) on household consumption, assets, and liabilities across different income cohorts using a Smooth Local Projections (SLP) approach. We find that high-income households experience an immediate and significant increase in consumption, while low-income families initially reduce consumption but show a delayed increase starting six quarters after the shock.We identify two primary channels through which LSAP shocks operate. First, a valuation effect on financial assets benefits high-income households with substantial wealth and sufficient liquidity to respond to the shock. Second, a real activity channel, where decreasing unemployment from heightened economic activity contributes to increased consumption among low-income households after a year and a half.Additionally, we propose that heightened prepayment and refinancing activity may explain the initial decline in consumption among low-income households.These findings highlight the differentiated impacts of LSAP shocks on various household groups and offer insights into the mechanisms driving these responses, drawing comparisons to conventional monetary policy shocks.
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Tesis (Magíster en Economía)--Pontificia Universidad Católica de Chile, 2024