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Differences in euro-area household finances and their relevance for monetary-policy transmission

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  • Hintermaier, Thomas
  • Koeniger, Winfried

Abstract

This paper quantifies the extent of heterogeneity in consumption responses to changes in real interest rates and house prices in the four largest economies in the euro area: France, Germany, Italy, and Spain. We first calibrate a life-cycle incomplete-markets model with a financial asset and housing to match the large heterogeneity of households asset portfolios, observed in the Household Finance and Consumption Survey (HFCS) for these countries. We then show that the heterogeneity in household finances implies that responses of consumption to changes in the real interest rate and in house prices differ substantially across countries, and within countries by household characteristics such as age, housing tenure, and asset positions. The different consumption responses quantified in this paper point towards important heterogeneity in monetary-policy transmission in the euro area.

Suggested Citation

  • Hintermaier, Thomas & Koeniger, Winfried, 2019. "Differences in euro-area household finances and their relevance for monetary-policy transmission," CFS Working Paper Series 637, Center for Financial Studies (CFS).
    • Handle: RePEc:zbw:cfswop:637
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Fleck, Johannes & Monninger, Adrian, 2020. "Culture and portfolios: trust, precautionary savings and home ownership," Working Paper Series 2457, European Central Bank.
    2. Koeniger, Winfried & Ramelet, Marc-Antoine, 2018. "Home Ownership and Monetary Policy Transmission," IZA Discussion Papers 11950, Institute of Labor Economics (IZA).
    3. Slacalek, Jiri & Tristani, Oreste & Violante, Giovanni L., 2020. "Household balance sheet channels of monetary policy: A back of the envelope calculation for the euro area," Journal of Economic Dynamics and Control, Elsevier, vol. 115(C).
    4. Luetticke, Ralph, 2020. "Comment on “The Household Channel of Monetary Policy in the Euro Area: A Back of the Envelope Calculation”," Journal of Economic Dynamics and Control, Elsevier, vol. 115(C).

    More about this item

    Keywords

    European household portfolios; consumption; monetary policy transmission; international comparative finance; housing;

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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