Household indebtedness and the effectiveness of monetary policy: evidence from the Eurozone

Frigerio, Lucía; Magnífico, Luciano

Household indebtedness and the effectiveness of monetary policy: evidence from the Eurozone

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Frigerio, L, Magnífico, L. Household indebtedness and the effectiveness of monetary policy: evidence from the Eurozone. 2024. handle: http://hdl.handle.net/10230/68743

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Abstract

This paper investigates the relationship between household indebtedness and the effectiveness of monetary policy among Euro Area countries. We follow a panel local projection approach, allowing for non-linearities and a high-frequency framework for identifying monetary shocks. Our findings indicate that elevated household debt, relative to its trend, amplifies the effects of monetary policy shocks on macroeconomic variables, highlighting a significant cash flow channel in high-debt scenarios. Additionally, we assess the influence of mortgage interest rate types on this relationship, finding that the proportion of adjustable-rate mortgages does not significantly affect the cash flow channel when analyzed alongside the credit gap.

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Treball fi de màster de: Master's Degree in Specialized Economic Analysis: Macroeconomic Policy and Financial Markets Program. Curs 2023-2024
Tutors: Hugo Rodríguez Mendizábal; Luis Rojas