Household Consumption Does Not Respond Directly to Interest Rates: Evidence From 10 Macroeconomic Shocks

RePEc Short ID: pcr255
ORCID iD: 0000-0001-9853-2520

Crawley, Edmund; Gamber, William L.

doi:10.17016/FEDS.2025.021r1

Working Paper Revision

Household Consumption Does Not Respond Directly to Interest Rates: Evidence From 10 Macroeconomic Shocks

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.

JEL Classification: E21; E32; E52;

https://doi.org/10.17016/FEDS.2025.021r1