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HKC05 - Household Portfolios, Corporate Leverage, and the Supply Side of Monetary Policy

Author

Listed:
  • Goodhart, Charles

    (London School of Economics and CEPR)

  • Peiris, M. Udara

    (Department of Economics, Oberlin College)

  • Tsomocos, Dimitrios

    (University of Oxford)

  • Wang, Xuan

    (Vrije Universiteit Amsterdam and Tinbergen Institute)

Abstract

Corporate borrowing creates safe claims for some households and concentrates residual risk in equity for others. This portfolio heterogeneity drives a supply-side channel through which corporate leverage conditions monetary transmission. Tightening erodes equity holders’ wealth while safe-asset holders are cushioned; the resulting income effect makes aggregate labor fall more at high leverage, raising the sacrifice ratio. A static model yields a closed-form hump in leverage, with the US range on the rising side, disciplined by Survey of Consumer Finances portfolio shares. A calibrated dynamic model roughly doubles the sacrifice ratio, and US local projections agree in sign, shape, and timing.

Suggested Citation

  • Goodhart, Charles & Peiris, M. Udara & Tsomocos, Dimitrios & Wang, Xuan, 2026. "HKC05 - Household Portfolios, Corporate Leverage, and the Supply Side of Monetary Policy," Oberlin College Kasper Economics and Business Working Papers Series 2602, Oberlin College, Department of Economics.
    • Handle: RePEc:cxv:wpaper:2602
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    File URL: https://digitalcommons.oberlin.edu/cgi/viewcontent.cgi?article=1012&context=economics_wps
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    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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