Differences in Euro-Area Household Finances and their Relevance for Monetary-Policy Transmission
CESifo, Munich, 2018
CESifo Working Paper No. 7088
This paper quantifies mechanisms through which heterogeneity in household finances affects the transmission of monetary policy, considering housing tenure choices over the life cycle. Our analysis focuses on the four largest economies in the euro area: France, Germany, Italy, and Spain. Across these countries, we find that responses of consumption to changes in the real interest rate and in house prices differ substantially. Our analysis links the differences in the aggregate responses to the underlying heterogeneity in household characteristics such as age, housing tenure, and asset positions. We quantify how the size of the responses depends on household expectations about future financing conditions affected by forward guidance.
Fiscal Policy, Macroeconomics and Growth
Monetary Policy and International Finance