SpringerLink
Log in

The effect of monetary policy on household consumption expenditures in Portugal: A decomposition of the transmission channel

  • Original Article
  • Published:
Portuguese Economic Journal Aims and scope Submit manuscript

Abstract

We follow Slacalek et al. (2020) monetary transmission decomposition approach to investigate the effects of monetary policy shocks on household consumption expenditures in Portugal since joining the euro area. Extending their analysis to Portugal, we quantify the monetary policy transmission channels using a combination of micro-level household data from the 3rd wave of the Household Finance and Consumption Survey and structural vector autoregressions estimated using aggregate-level data and identified using high-frequency data around monetary policy meetings. We find that the wealthy hand-to-mouth households’ consumption has the most significant reaction to monetary shocks because of extensive housing wealth and net interest rate exposure channels. In addition, due to its large size as a group in the Portuguese economy, we find that the wealthy hand-to-mouth households’ consumption response explains why the aggregate consumption reacts more to monetary shocks in Portugal than in other European countries.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Subscribe and save

Springer+ Basic
EUR 32.99 /Month
  • Get 10 units per month
  • Download Article/Chapter or Ebook
  • 1 Unit = 1 Article or 1 Chapter
  • Cancel anytime
Subscribe now

Buy Now

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2
Fig. 3
Fig. 4
Fig. 5
Fig. 6
Fig. 7

Similar content being viewed by others

Data availability

The data from HFCS data is not publicly available. Joao Duarte was granted access to the data for research purposes following the ECB microdata request procedure.

Code availability

All code was written in R, Stata and Matlab and can be made available.

Notes

  1. We thank an anonymous referee for suggesting the usage of HFCS 3rd wave data to calibrate the marginal propensity to consume for each household in Portugal.

References

  • Altavilla C, Brugnolini L, Gürkaynak RS, Motto R, Ragusa G (2019) Measuring euro area monetary policy. J Monet Econ 108:162–179

    Article  Google Scholar 

  • Auclert A (2019) Monetary policy and the redistribution channel. Am Econ Rev 109(6):2333–2367

    Article  Google Scholar 

  • Burriel P, Galesi A (2018) Uncovering the heterogeneous effects of ecb unconventional monetary policies across euro area countries. Eur Econ Rev 101:210–229

    Article  Google Scholar 

  • Corsetti G, Duarte JB, Mann S (2022) One money, many markets. J Eur Econ Assoc 20(1):513–548

    Article  Google Scholar 

  • De Castro GL (2007) The wealth effect on consumption in the portuguese economy. Bank of Portugal Economic Bulletin 13:37–55

    Google Scholar 

  • Gürkaynak RS, Sack BP, Swanson ET (2005) Do actions speak louder than words? the response of asset prices to monetary policy actions and statements. Int J Cent Bank 1:55–93

    Google Scholar 

  • Havránek T (2015) Measuring intertemporal substitution: The importance of method choices and selective reporting. J Eur Econ Assoc 13(6):1180–1204

    Article  Google Scholar 

  • Jappelli T, Pistaferri L (2010) The consumption response to income changes. Annu Rev Econ 2(1):479–506

    Article  Google Scholar 

  • Jappelli T, Pistaferri L (2014) Fiscal policy and mpc heterogeneity. Am Econ J Macroecon 6(4):107–136

    Article  Google Scholar 

  • Kaplan G, Violante GL (2014) A model of the consumption response to fiscal stimulus payments. Econometrica 82(4):1199–1239

    Article  Google Scholar 

  • Kaplan G, Violante GL, Weidner J (2014) The wealthy hand-to-mouth. Brookings Papers on Economic Activity pp 139–153

  • Kaplan G, Moll B, Violante GL (2018) Monetary policy according to hank. Am Econ Rev 108(3):697–743

    Article  Google Scholar 

  • Lenza M, Slacalek J (2018) How does monetary policy affect income and wealth inequality? evidence from quantitative easing in the euro area. Tech. rep., ECB Working Paper

  • Linzert T, Schmidt S (2011) What explains the spread between the euro overnight rate and the ecb’s policy rate? Int J Financ Econ 16(3):275–289

    Article  Google Scholar 

  • Lovallo D, Kahneman D (2003) Delusions of success. Harv Bus Rev 81(7):56–63

    Google Scholar 

  • McKay A, Reis R (2016) The role of automatic stabilizers in the us business cycle. Econometrica 84(1):141–194

    Article  Google Scholar 

  • Parker JA, Souleles NS, Johnson DS, McClelland R (2013) Consumer spending and the economic stimulus payments of 2008. Am Econ Rev 103(6):2530–53

    Article  Google Scholar 

  • Slacalek J, Tristani O, Violante GL (2020) Household balance sheet channels of monetary policy: A back of the envelope calculation for the euro area. J Econ Dyn Control 115:103879

    Article  Google Scholar 

  • Stock JH, Watson MW (2016) Dynamic factor models, factor-augmented vector autoregressions, and structural vector autoregressions in macroeconomics, vol 2. Elsevier

    Google Scholar 

Download references

Funding

We thank the Fundação Francisco Manuel dos Santos financial support. Joao Duarte work was funded by Fundação para a Ciência e a Tecnologia (UIDB/00124/2020, UIDP/00124/2020 and Social Sciences DataLab - PINFRA/22209/2016), POR Lisboa and POR Norte (Social Sciences DataLab, PINFRA/22209/2016), PTDC/EGE- ECO/7620/2020 and CEECIND/03227/2018.

Author information

Authors and Affiliations

  1. Nova School of Business and Economics, Lisbon, Portugal

    João B. Duarte

  2. European Central Bank, Frankfurt, Germany

    Nuno Pereira

Authors
  1. João B. Duarte
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Nuno Pereira
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to João B. Duarte.

Ethics declarations

Conflicts of interest/Competing interests

Not applicable.

Additional information

Publisher’s Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Appendix

Appendix

1.1 HFCS 3rd wave variables

  • Consumption

  • hi0220 - monthly expenses on consumer goods and services

  • Income

  • di1300 - rental income from real estate property

  • di1400 - income from financial assets

  • di1412 - interest payments

  • di1500 - income from pensions

  • di1420 - income from private business other than self-employment

  • di1600 - Regular social transfers (except pensions)

  • di1700 - income from regular private transfers

  • di1800 - income from other sources

  • di2000 - total household gross income

  • Liquid assets

  • da2101 - deposits

  • da2102 - mutual funds

  • da2103 - bonds

  • da2105 - shares, publicly traded

  • Liquid liabilities

  • dl1210 - outstanding balance of credit line/overdraft

  • dl1220 - outstanding balance of credit card debt

  • dl1230 - outstanding balance of other non-mortgage loans

  • Illiquid assets

  • da1110 - value of household’s main residence

  • da1120 - value of other real estate property

  • da1140 - value of self-employment businesses

  • da2109 - voluntary pension/whole life insurance

  • pf0710 - current value of all occupational pension plans that have an account

  • Illiquid liabilities

  • hb170$ - household main residence mortgage $x: amount still owed

  • hb180$ - household main residence mortgage $x: adjustable interest rate

  • hb370$ - other property mortgage $x: amount still owed

  • Stocks

  • hd1510 - value of publicly traded shares

  • hd1520 - any shares issued by foreign companies? (1 - Yes, 2 - No)

1.2 Marginal tax rates

Table 5 Tax rates for Portugal, 2014
Full size table

1.3 Sources for macroeconomic variables

Interest rate

Euro area (changing composition) - Money Market - Eonia rate - Historical close, average of observations through period. End of March, June, September and December are used as quarterly values. Source: European Central Bank

Non-durable consumption

Private consumption of resident households by durability - chain linked volume data. Sum of consumption of non-durable goods and services Source: Statistics Portugal, National Accounts

House prices

The nominal house price index covers the sales of newly-built and existing dwellings. Source: OECD

Stock prices

A share price index measures how the value of the stocks on the national stock exchange in the index is changing. Source: OECD

HICP

Portugal - HICP - Overall index, Monthly Index, seasonally adjusted by the authors. Quarterly values are obtained by averaging monthly values. Source: European Central Bank

GDPM

Gross domestic product at market prices - Portugal - Total economy, Euro, Current prices. Seasonally adjusted by the authors. Source: European Central Bank

1.4 Portuguese stock market wealth

Fig. 8
figure 8

Percentiles 95, 96, 97, 98 and 99 of Portuguese stock market wealth, EUR Source: Household Finance and Consumption Survey 3rd wave

Full size image
Table 6 Decomposition means and confidence intervals
Full size table

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Duarte, J.B., Pereira, N. The effect of monetary policy on household consumption expenditures in Portugal: A decomposition of the transmission channel. Port Econ J 22, 149–172 (2023). https://doi.org/10.1007/s10258-022-00214-1

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10258-022-00214-1

Keywords

JEL

Search

Navigation