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Population aging and the transmission of monetary policy to consumption

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  • Arlene Wong

    (Northwestern University)

Abstract

Previous work has documented that housing and refinancing decisions play an important role in shaping the aggregate and cross-sectional consumption elasticities to interest rate shocks. New home purchases and refinances can then affect durable and non-durable consumption through the associated fluctuations in disposable income and the complementarity between housing and consumption. In this paper, we examine the transmission of monetary policy through housing debt. Specifically, we use detailed micro data to study the mortgage channel that links monetary policy with household borrowing and consumption expenditure. Specifically, we quantify the heterogeneity across borrowers and state-dependency in the pass-through of interest rate shocks to consumption over the Federal Reserve Bank’s interest rate cycle.

Suggested Citation

  • Arlene Wong, 2016. "Population aging and the transmission of monetary policy to consumption," 2016 Meeting Papers 716, Society for Economic Dynamics.
  • Handle: RePEc:red:sed016:716
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    Cited by:

    1. Serdar Ozkan & Kurt Mitman & Fatih Karahan & Aaron Hedlund, 2016. "Monetary Policy, Heterogeneity and the Housing Channel," 2016 Meeting Papers 663, Society for Economic Dynamics.
    2. Ralph Luetticke, 2018. "Transmission of Monetary Policy with Heterogeneity in Household Portfolios," Discussion Papers 1819, Centre for Macroeconomics (CFM).
    3. Xiaoqing Zhou, 2018. "Home Equity Extraction and the Boom-Bust Cycle in Consumption and Residential Investment," 2018 Meeting Papers 795, Society for Economic Dynamics.
    4. Kovacs, Agnes & Rostom, May & Bunn, Philip, 2018. "Consumption response to aggregate shocks and the role of leverage," LSE Research Online Documents on Economics 90378, London School of Economics and Political Science, LSE Library.
    5. 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.
    6. , 2020. "Consumption Heterogeneity: Micro Drivers and Macro Implications," Finance and Economics Discussion Series 2020-005, Board of Governors of the Federal Reserve System (U.S.).
    7. Andreas Fuster & Matthew Plosser & Philipp Schnabl & James Vickery, 2019. "The Role of Technology in Mortgage Lending," Review of Financial Studies, Society for Financial Studies, vol. 32(5), pages 1854-1899.
    8. Piazzesi, M. & Schneider, M., 2016. "Housing and Macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.),Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 1547-1640, Elsevier.
    9. Sanjay Singh, 2018. "Output Hysteresis and Optimal Monetary Policy," 2018 Meeting Papers 554, Society for Economic Dynamics.
    10. Juan Carlos Parra-Alvarez & Olaf Posch & Mu-Chun Wang, 2017. "Estimation of Heterogeneous Agent Models: A Likelihood Approach," CESifo Working Paper Series 6717, CESifo.
    11. Krueger, D. & Mitman, K. & Perri, F., 2016. "Macroeconomics and Household Heterogeneity," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.),Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 843-921, Elsevier.
    12. Joseph Vavra & Erik Hurst & Andreas Fuster & Martin Beraja, 2017. "Regional Heterogeneity and Monetary Policy," 2017 Meeting Papers 270, Society for Economic Dynamics.
    13. Cravino, Javier & Lan, Ting & Levchenko, Andrei A., 2020. "Price stickiness along the income distribution and the effects of monetary policy," Journal of Monetary Economics, Elsevier, vol. 110(C), pages 19-32.
    14. Coibion, Olivier & Gorodnichenko, Yuriy & Koustas, Dmitri, 2017. "Consumption Inequality and the Frequency of Purchases," IZA Discussion Papers 10882, Institute of Labor Economics (IZA).
    15. Stijn Claessens & M Ayhan Kose, 2018. "Frontiers of macrofinancial linkages," BIS Papers, Bank for International Settlements, number 95, July.
    16. Martin Eichenbaum & Sergio Rebelo & Arlene Wong, 2018. "State Dependent Effects of Monetary Policy: the Refinancing Channel," NBER Working Papers 25152, National Bureau of Economic Research, Inc.
    17. Stijn Claessens & M Ayhan Kose, 2017. "Asset prices and macroeconomic outcomes: a survey," BIS Working Papers 676, Bank for International Settlements.
    18. Ludmila Fadejeva & Zeynep Kantur, 2020. "Wealth distribution and monetary policy," Working Papers 2020/03, Latvijas Banka.
    19. Nuno Paixao, 2018. "Housing Prices and Consumer Spending: The Bank Balance Sheet Channel," 2018 Meeting Papers 1017, Society for Economic Dynamics.
    20. Dantas Guimarães, Silvana & Ferreira Tiryaki, Gisele, 2020. "The impact of population aging on business cycles volatility: International evidence," The Journal of the Economics of Ageing, Elsevier, vol. 17(C).
    21. Henrique S. Basso & Omar Rachedi, 2018. "The young, the old, and the government: demographics and fiscal multipliers," Working Papers 1837, Banco de España;Working Papers Homepage.
    22. Juan Carlos Parra-Alvarez & Olaf Posch & Mu-Chun Wang, 2017. "Identification and estimation of heterogeneous agent models: A likelihood approach," CREATES Research Papers 2017-35, Department of Economics and Business Economics, Aarhus University.
    23. François Geerolf & Thomas Grjebine, 2018. "Property Tax Shocks and Macroeconomics," Working Papers 2018-03, CEPII research center.
    24. Joshua Abel & Andreas Fuster, 2018. "How do mortgage refinances affect debt, default, and spending? Evidence from HARP," Staff Reports 841, Federal Reserve Bank of New York.
    25. Zhou, Xiaoqing, 2020. "A quantitative evaluation of the Housing Provident Fund program in China," China Economic Review, Elsevier, vol. 61(C).

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