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

G MacDonald, Andrew Mullineux, R Sensarma

    Research output: Contribution to journalArticle

    7 Citations (Scopus)

    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 - 1 Jan 2011

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