The Transmission of Monetary Policy under the Microscope

Abstract

We investigate the transmission of monetary policy to household consumption usingdetailed administrative data on the universe of households in Norway. Based on anovel series of identified monetary policy shocks, we estimate the dynamic responsesof consumption, income, and saving along the liquid asset distribution of households.We find that low-liquidity but also high-liquidity households show strong responses,interest rate changes faced by borrowers and savers feed into consumption, and indi-rect effects of monetary policy outweigh direct effects, albeit with a delay. Overall, theresults support the importance of financial frictions, cash-flow channels, and heteroge-neous effects of monetary policy.