Article,
Monetary Policy and Liquidity Constraints: Evidence from the Euro Area
Contributors
Kramer, John
0000-0001-8033-0103
[3]
Affiliations
- [1] Stockholm University [NORA names: Sweden; Europe, EU; Nordic; OECD];
- [2] Banco de España (email: )
- [3] University of Copenhagen [NORA names: KU University of Copenhagen; University; Denmark; Europe, EU; Nordic; OECD]
Abstract
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)
Keywords
ECB,
ECB announcements,
Monetary,
announcement,
area,
changes,
constraints,
context,
countries,
data,
effect,
elasticity,
elasticity of output,
estimation,
euro,
euro area,
evidence,
fraction,
fraction of households,
heterogeneous effects,
households,
instrument,
instrumental variable estimation,
liquid,
liquidity constraints,
liquidity-constrained households,
localization,
micro data,
monetary policy,
monetary policy shocks,
narrow time window,
output,
policy,
policy shocks,
rate,
relationship,
response,
response of output,
shock,
time window,
variable estimates,
window
