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The Household Cash Flow Channel of Monetary Policy

Author

Listed:
  • Helen Hughson

    (Reserve Bank of Australia)

  • Gianni La Cava

    (Reserve Bank of Australia)

  • Paul Ryan

    (Reserve Bank of Australia)

  • Penelope Smith

    (Reserve Bank of Australia)

Abstract

Changes in interest rates can affect household spending by directly affecting households� interest income and payments and, in turn, the amount of cash that households have available to spend. This is typically referred to as the �household cash flow channel of monetary policy�. Household-level data provide evidence that the cash flow channel operates both for households that are net borrowers and for those that are net lenders, though the effect on borrowers is estimated to be much stronger than the effect on lenders. Overall, changes in household cash flow appear to be an important channel through which lower interest rates can stimulate greater household spending.

Suggested Citation

  • Helen Hughson & Gianni La Cava & Paul Ryan & Penelope Smith, 2016. "The Household Cash Flow Channel of Monetary Policy," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 21-30, September.
    • Handle: RePEc:rba:rbabul:sep2016-03
    as

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    File URL: https://www.rba.gov.au/publications/bulletin/2016/sep/pdf/rba-bulletin-2016-09-the-household-cash-flow-channel-of-monetary-policy.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    household cash flow; household consumption; monetary policy; liquidity constraints; mortgage debt; bank deposits; interest payments; interest receipts;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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