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

Garry MacDonald, Andy Mullineux, Rudra Sensarma

Research output: Contribution to journalArticlepeer-review

7 Citations (Scopus)
118 Downloads (Pure)

Abstract

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.

Original languageEnglish
Pages (from-to)1991-2001
Number of pages11
JournalApplied Economics
Volume43
Issue number16
DOIs
Publication statusPublished - 2011

Fingerprint

Dive into the research topics of 'Asymmetric effects of interest rate changes: the role of the consumption-wealth channel'. Together they form a unique fingerprint.

Cite this