Bank of Russia Monetary Policy and Household Consumption Expenditure

This paper analyses the impact of the Bank of Russia’s monetary policy on durable and non-durable consumption and on total consumption expenditure in household groups that have different levels of income, marginal propensities to consume, credit burden, and savings. Our cluster analysis based on the data of the Russia Longitudinal Monitoring Survey – Higher School of Economics (RLMS–HSE) for the 2015–2019 period yields three groups of households: hand-to-mouth households with a high marginal propensity to consume and extremely low savings and credit burden; non-hand-to-mouth households with a low marginal propensity to consume, high savings, and moderate credit burden; and representative households with median income and expenditure, a median marginal propensity to consume, low savings, and extremely high debt burden. To test the hypothesis that monetary policy produces heterogeneous effects, we construct fixed effects models. The results of the analysis suggest that changes in the policy interest rate have a similar impact on changes in aggregate consumption by all household groups and has no significant influence on changes in nondurable consumption. Contrastingly, monetary policy has a significant impact on durable consumption: an easing of monetary policy causes an increase in consumption by the median-income group and a reduction in consumption by hand-to-mouth households. There is no difference in the impact between the non-hand-to-mouth and representative households, and monetary policy easing leads to a rise in consumption by both groups.