ESRI Discussion Paper Series No.403 Subjective Monetary Policy Shocks

Kento Tango
Economic and Social Research Institute, Cabinet Office
Graduate School of International Management, Yokohama City University
Yoshiyuki Nakazono
Economic and Social Research Institute, Cabinet Office
Graduate School of International Management, Yokohama City University

Abstract

We introduce a new concept of monetary policy shocks - subjective monetary policy shocks - defined at the household level as the residual from a Taylor rule-style regression that uses each household's own macroeconomic expectations. Using a unique panel dataset that links household survey-based expectations with high-frequency scanner data on expenditure in Japan, we identify cross-sectional heterogeneity in perceived policy shocks and estimate their effects on consumption behavior. Our findings reveal striking heterogeneity in consumption responses. Households with outstanding loans sharply reduce consumption following a perceived tightening, while asset holders increase theirs - consistent with redistribution channels emphasized in heterogeneous-agent models. These effects are likely to be mediated by macroeconomic attentiveness: households that actively update their information sets about interest rates tend to exhibit more significant and timely consumption responses. These results suggest that differences in attention and financial exposure jointly shape how households perceive and respond to monetary policy, offering micro-level evidence on the heterogeneity of monetary policy transmission.

Structure of the whole text

    1. 1 Introduction
      Page 2
    2. 2 Theoretical Motivation
      Page 5
      1. 2.1 Heterogeneity in Perceived Policy Shocks
        Page 5
      2. 2.2 Heterogeneity in Consumption Responses
        Page 6
    3. 3 Data
      Page 6
      1. 3.1 Consumers’ Economic Outlooks and Updating Frequency of the Information Sets
        Page 7
      2. 3.2 Survey on Consumption Expenditure
        Page 9
        1. 3.2.1 Home Scanner Data
          Page 9
        2. 3.2.2 Imputed Consumption
          Page 11
    4. 4 Identification Strategy
      Page 13
      1. 4.1 Estimating the Taylor Rule
        Page 13
    5. 5 Empirical Results: Consumption Responses to Subjective Monetary Policy Shocks
      Page 15
      1. 5.1 Average Effects and Baseline Dynamics
        Page 15
      1. 5.2 Heterogeneity by Attention and Financial Exposure
        Page 15
      1. 5.3 Heterogeneity by Lifecycle Position
        Page 16
      1. 5.4 Robustness Checks
        Page 17
    6. 6 Conclusion
      Page 18
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