Monetary Policy and Liquidity Constraints: Evidence from the Euro Area

Research output: Contribution to journalJournal articleResearchpeer-review

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)
Original languageEnglish
JournalAmerican Economic Journal: Macroeconomics
Volume14
Issue number4
Pages (from-to)309-340
ISSN1945-7707
DOIs
Publication statusPublished - 1 Oct 2022

ID: 327639268