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Does Household Behaviour Depend on Monetary Policy? Evidence from Cyprus

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  • Nektarios Michail

    (Central Bank of Cyprus)

  • Agorasti Patronidou

    (Central Bank of Cyprus)

  • Ioanna Evangelou

    (Central Bank of Cyprus)

Abstract

The paper examines whether euro area monetary policy was able to affect the consumption and investment behaviour of households in Cyprus, using household level data for Cyprus obtained from the Household Finance and Consumption Survey. Using a panel analysis, we find that monetary policy only affects the deposit and consumption behaviour of indebted households, suggesting that the main transmission channel of monetary policy is via the change in loan instalments. Households without loans appear to be, in general, unaffected by monetary policy changes. This suggests that monetary policy can paradoxically be less effective when most needed, as, in times of financial stress, households tend to focus on deleveraging. Additional avenues with regards to the potential impact of monetary policy on investing behaviour are also explored.

Suggested Citation

  • Nektarios Michail & Agorasti Patronidou & Ioanna Evangelou, 2021. "Does Household Behaviour Depend on Monetary Policy? Evidence from Cyprus," Working Papers 2021-01, Central Bank of Cyprus.
    • Handle: RePEc:cyb:wpaper:2021-1
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    References listed on IDEAS

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    1. Sterk, Vincent & Tenreyro, Silvana, 2018. "The transmission of monetary policy through redistributions and durable purchases," Journal of Monetary Economics, Elsevier, vol. 99(C), pages 124-137.
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    7. Ralph Luetticke, 2021. "Transmission of Monetary Policy with Heterogeneity in Household Portfolios," American Economic Journal: Macroeconomics, American Economic Association, vol. 13(2), pages 1-25, April.
    8. Tzamourani, Panagiota, 2021. "The interest rate exposure of euro area households," European Economic Review, Elsevier, vol. 132(C).
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    12. Nektarios A. Michail, 2019. "What if they had not Gone Negative? A Counterfactual Assessment of the Impact from Negative Interest Rates," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 81(1), pages 1-19, February.
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    Cited by:

    1. Savvas Antoniou & Ioanna Evangelou & Theodosis Kallenos & Nektarios A. Michail, 2022. "Estimating the Mortgage Default Probability in Cyprus: Evidence using micro data," Cyprus Economic Policy Review, University of Cyprus, Economics Research Centre, vol. 16(1), pages 37-49, June.
    2. Kyriaki G. Louka & Nektarios A. Michail, 2022. "Missed Payments, Renegotiations, and Household Consumption," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 20(1), pages 31-50.

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    More about this item

    Keywords

    HFCS; survey; monetary policy; interest rate; households;
    All these keywords.

    JEL classification:

    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G50 - Financial Economics - - Household Finance - - - General

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