TY - JOUR

T1 - Monetary Policy and Liquidity Constraints

T2 - Evidence from the Euro Area

AU - Almgren, Mattias

AU - Gallegos, Jose-Elias

AU - Kramer, John

AU - Lima, Ricardo

PY - 2022/10/1

Y1 - 2022/10/1

N2 - We quantify the relationship between the response of output to monetary policy shocks and the share of liquidity-constrained households. We do so in the context of the euro area, using a Local Projections Instrumental Variables estimation. We construct an instrument for changes in interest rates from changes in overnight indexed swap rates in a narrow time window around ECB announcements. Monetary policy shocks have heterogeneous effects on output across countries. Using micro data, we show that the elasticity of output to monetary policy shocks is larger in countries that have a larger fraction of households that are liquidity constrained. (JEL E23, E43, E52, F33, F45, G51)

AB - We quantify the relationship between the response of output to monetary policy shocks and the share of liquidity-constrained households. We do so in the context of the euro area, using a Local Projections Instrumental Variables estimation. We construct an instrument for changes in interest rates from changes in overnight indexed swap rates in a narrow time window around ECB announcements. Monetary policy shocks have heterogeneous effects on output across countries. Using micro data, we show that the elasticity of output to monetary policy shocks is larger in countries that have a larger fraction of households that are liquidity constrained. (JEL E23, E43, E52, F33, F45, G51)

U2 - 10.1257/mac.20200096

DO - 10.1257/mac.20200096

M3 - Journal article

VL - 14

SP - 309

EP - 340

JO - American Economic Journal: Macroeconomics

JF - American Economic Journal: Macroeconomics

SN - 1945-7707

IS - 4

ER -