Finance and Economics Discussion Series (FEDS)
March 2025 (Revised June 2026)
Household Consumption Does Not Respond Directly to Interest Rates: Evidence From 10 Macroeconomic Shocks
Edmund Crawley and William L. Gamber
Abstract:
We estimate how much household spending responds directly to changes in interest rates. We develop a Bayesian procedure that uses the empirical impulse responses to macroeconomic shocks to discipline the consumer block of a HANK model. The procedure can be applied shock-by-shock or pooled jointly. We apply this method in two ways using 10 macroeconomic shocks: a structural model with sticky expectations over both income and interest rates, and a non-parametric estimation of the consumption-to-interest-rate Jacobian. We find no evidence that households respond directly to interest rates at any horizon, leaving essentially no role for a direct interest rate channel.
Keywords: Consumption, HANK, Interest rates, Monetary policy
DOI: https://doi.org/10.17016/FEDS.2025.021r1
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