Household Consumption and Unconventional Monetary Policy: Insights from a Bayesian SVAR Model

Ebele Amali,Tersoo Shimonkabir Shitile

doi:10.5296/jsss.v7i2.17436

Abstract

This study uses a Bayesian SVAR to demonstrate that movements in household consumption can be explained by expansionary credit easing policy. The latter reflects ongoing heterodox monetary policy regimes in many countries, especially emerging markets and developing economies (EMDEs). Using Nigeria’s data over the period from Q1 1995 to Q4 2018, the empirical analysis reveals that the role of credit easing in the household consumption is not important in Nigeria, as a large part of the variation in household consumption can be explained by shocks to other economic activities. The findings also indicate a rough estimate that the impact threshold of credit easing on household consumption is no more than 2 percent, thus requiring accelerators and accelerator policy to overcome the threshold. Our results suggest the need for a broad-based policy response to fully maximize the positive eﬀect of credit supply shock on private spending and aggregate demand in general.

Highlights

Monetary policy is a viable tool used to stabilize the business cycle, as fiscal policy measures result in permanent deficits (D’Acunto, Hoang, & Weber, 2019)
The econometric analysis framework reflects the objective to answer the important question of to what extent household consumption has been driven by unconventional monetary policy in the form of central bank credit easing interventions, and how sensitive consumption of households is to changes in the state of macroeconomic variables?
This study empirically investigates the link between central bank credit easing and household consumption in Nigeria using prior information to obtain more precise Vector-Auto regression (VARs) estimates of impulse response functions

Summary

Introduction

Monetary policy is a viable tool used to stabilize the business cycle, as fiscal policy measures result in permanent deficits (D’Acunto, Hoang, & Weber, 2019). Changes in central bank credit easing intervention impact decisions of households to purchase durable goods through inflation expectations, and income (wealth effects). If Ricardian households exist, a credit easing intervention increase might result in a negative wealth effect. Direct lending by the central bank (or credit easing interventions) can mitigate disruption in the intermediation of funds when frictions in the credit market are significant (Quint & Rabanal, 2017). Within this context, the transmission channel of UMP is expected to impact the credit costs of borrowers directly and, the domestic demand. A central research problem is whether a central bank-financed credit supply has led to higher aggregate domestic consumption spending

Methods

Results

Conclusion