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.
Almgren, Mattias, José-Elías Gallegos, John Kramer, and Ricardo Lima.
"Monetary Policy and Liquidity Constraints: Evidence from the Euro Area."
American Economic Journal: Macroeconomics,
Interest Rates: Determination, Term Structure, and Effects
International Monetary Arrangements and Institutions
Macroeconomic Issues of Monetary Unions
Household Finance: Household Saving, Borrowing, Debt, and Wealth