Working Paper: CEPR ID: DP17751
Authors: Francesco Grigoli; Damiano Sandri
Abstract: We analyze the impact of monetary policy on consumer spending using credit card data. Because of their high frequency, these data improve identification and allow for a precise characterization of the transmission lags. We find that shocks to short-term interest rates affect spending much more rapidly than shocks to longer-term interest rates. We also detect significant asymmetries. While interest rate rises are contractionary, interest rate cuts are unable to lift spending. Finally, by exploiting the disaggregation of credit card data, we uncover considerable heterogeneity in the effects of monetary policy across spending categories and a stronger impact on higher-income users.
Keywords: monetary policy; credit card spending; heterogeneity; transmission
JEL Codes: E21; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Positive interest rate shocks (increases in the 2-year yield) (E43) | Declines in credit card spending (D12) |
| Negative interest rate shocks (E43) | No significant stimulation of spending (E62) |
| Monetary tightening (E52) | Strong contraction in discretionary spending (H61) |
| Monetary tightening (E52) | Negligible effect on spending for consumer staples (D12) |
| Interest rate changes (E43) | More pronounced effects among higher-income credit card users (G51) |
| Short-term interest rate changes (E43) | More immediate effects on spending (E62) |
| Long-term interest rates (E43) | No significant impact on spending (H69) |
| Traditional monetary policy tools (E52) | Effective in influencing consumer behavior quickly (D12) |
| Unconventional tools (forward guidance or quantitative easing) (E19) | Operate over longer time horizons (D25) |