Asymmetric effects of interest rate changes: the role of the consumption-wealth channel

This article examines the role of the consumption-wealth channel in explaining asymmetric effects of monetary policy changes. Towards this end, we draw upon available literature on the consumption function and behavioural finance to construct a framework for asymmetric effects of monetary policy cau...

Full description

Saved in:
Bibliographic Details
Published inApplied economics Vol. 43; no. 16; pp. 1991 - 2001
Main Authors MacDonald, Garry, Mullineux, Andy, Sensarma, Rudra
Format Journal Article
LanguageEnglish
Published London Routledge 01.06.2011
Taylor and Francis Journals
Taylor & Francis Ltd
Taylor & Francis (Routledge)
SeriesApplied Economics
Subjects
Consumption
Consumption function
Interest rates
International finance
Macroeconomics
Monetary policy
Money and credit
Transmission mechanism
United Kingdom
Validation studies
Wealth
United Kingdom > UK
Social Sciences & Humanities
Online AccessGet full text

Cover

More Information
Summary:This article examines the role of the consumption-wealth channel in explaining asymmetric effects of monetary policy changes. Towards this end, we draw upon available literature on the consumption function and behavioural finance to construct a framework for asymmetric effects of monetary policy caused by the impact of wealth changes on aggregate consumption. We then employ data from the UK to examine the validity of the proposed framework. In the context of a liberalized economy with easy access to consumer credit, wealth reduction due to monetary tightening is expected to have weaker impact on spending than increase in wealth. Our results validate the above hypothesis.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:0003-6846
1466-4283
DOI:10.1080/00036840902950572