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Ultra-accommodative Monetary Policy and Unintentional Drags on Consumer Spending

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  • Xing, Victor

Abstract

New York Fed President Dudley recently commented that “real consumer spending growth appears to have moderated somewhat from the relatively robust pace of the second half of 2015” (Dudley, 2016). While this may suggest headwinds from cyclical economic conditions, there are emerging signs that ultra-accommodative policy also acts as a constraint on consumer spending via income effects. Instead of inducing savers to spend and borrow, rapid asset price appreciation as a result of monetary easing have outpaced wage growth, and pass-through services inflation subsequently reduced discretionary income and forced already-levered consumers to save instead of spend. This unintended consequence worked against accommodative policy’s desired substitution effects and suggests further easing would likely yield diminishing results if asset price appreciation continues to outpace real income growth.

Suggested Citation

  • Xing, Victor, 2016. "Ultra-accommodative Monetary Policy and Unintentional Drags on Consumer Spending," MPRA Paper 77749, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:77749
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    File URL: https://mpra.ub.uni-muenchen.de/77749/1/MPRA_paper_77749.pdf
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    References listed on IDEAS

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    1. Jan Hatzius & Peter Hooper & Frederic S. Mishkin & Kermit L. Schoenholtz & Mark W. Watson, 2010. "Financial Conditions Indexes: A Fresh Look after the Financial Crisis," NBER Working Papers 16150, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Xing, Victor, 2017. "Central Bank Quantitative Easing as an Emerging Political Liability," MPRA Paper 81269, University Library of Munich, Germany.

    More about this item

    Keywords

    Quantitative Easing; Malinvestment; Consumer Spending; Involuntary Renter; Asset Price Inflation; Financial Conditions; Wage Growth;

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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