Dissertations, Theses, and Capstone Projects

Date of Degree

2-2025

Document Type

Dissertation

Degree Name

Ph.D.

Program

Economics

Advisor

Sangeeta Pratap

Committee Members

Chu-Ping Vijverberg

Thom Thurston

Subject Categories

Macroeconomics

Keywords

Monetary Policy, Monetary Policy Shocks, Interest Rate Exposure

Abstract

This dissertation consists of two chapters.

Chapter 1 - Households’ Balance Sheet Adjustment in Response to Monetary Policy Shocks.

Household’s balance sheet and housing decision have played crucial role in understanding the transmission of monetary policy in the last two decades. Monetary policy can affect the broader economy through household finances via the income channel and the wealth channel, and especially of they are debt or liquidity constrained. This chapter studies the unhedged interest rate exposure (URE) following Auclert (2019) for households using micro-level data from the Consumer Expenditure Survey for the years 1994 to 2012. Using the URE, I examine households’ exposure to interest rate changes via differences in income and consumption, and maturing assets and maturing liabilities. Additionally, I use the local projections methods by Jorda (2005) to calculate the impulse responses of URE to monetary policy shocks using pseudo cohorts based on demographic and financial variables. I find that wealthier households (mainly owners with mortgage) adjust their URE or increase their exposure in response to an expansionary monetary policy shock. And they do so by increasing their maturing liabilities. I also find a similar response for households with higher levels of illiquid assets accumulated. Older households increase their exposure to an interest rate shock anticipating a drop in the interest rate. I observe a similar but delayed response for households with the head of household between 20 to 34 years. These findings suggest that conditional on households’ demographic characteristics and financial positions, a monetary policy shock elicits heterogeneous response from households and can thus lead to weakened transmission of the monetary policy to the broader economy.

Chapter 2 - Response of House Price Index to Monetary Policy Shocks.

The housing market and monetary policy together have played pivotal roles in economic boom and busts either by affecting households assets through its price movements or by influencing refinancing or buying decisions for households. As housing accounts for a sizable portion of households’ balance sheet, the sensitivity of housing prices to monetary policy shock can aid in our understanding of the transmission of monetary policy to the broader economy. This chapter studies the transmission of monetary policy through the housing price channel and the effect of economic conditions on this mechanism. In this chapter, using the local projection method following Jorda (2005) I estimate the response of the house price index to monetary policy shocks as constructed following Gurkaynak et al. (2005) over the sample period 1994 to 2018. My results indicate that an expansionary monetary policy shock leads to an initial decrease and then an increase in the house price index after 10 quarters. Expansionary interest rate shock one-year ahead leads to a decrease in house prices. The magnitude of these effect varies conditional on the rates of unemployment. An expansionary change in the policy rate one year ahead is only successful in stimulating house prices after 2011 in high unemployment areas, whereas during the same time period, in areas with low rates of unemployment, the path of interest rate led to slightly negative initial response followed by an increase in house prices after 12 quarters. This heterogeneous response of house price index to the monetary policy shock indicate a weaker transmission of the policy to the broader economy.

This work is embargoed and will be available for download on Sunday, February 01, 2026

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