Work in Progress
Monetary Policy Shocks and Household Consumption in Chile: Aggregate Transmission and Heterogeneity across Households
Luis Pino-Sandoval, Iván Araya, José Barrales
Resumen
We study how monetary policy shocks affect household consumption in Chile, a small open economy with inflation targeting, inflation-indexed mortgage debt and high labor informality. We identify policy shocks following Romer and Romer (2004): at each monetary policy meeting of the Central Bank of Chile between 2001 and 2019 we purge the decided change in the policy rate of its systematic response to the private-sector forecasts of inflation and activity reported in the Economic Expectations Survey. Local projections on national accounts show that a 100 basis point contractionary shock lowers real household consumption by 2.5% after two years and 3.6% after three years, with durable goods falling four times as much as non-durables and services. Using the Encuesta de Protección Social household panel, we find that the consumption of households in the bottom quintile of labor income is more sensitive to monetary policy than that of households in the top quintile: per percentage point of cumulated shock, the consumption growth of the richest fifth differs from that of the poorest fifth by 0.7 percentage points, in the direction of a milder contraction. We find no evidence of a mortgage cash-flow channel. Because the household panel offers only four wave-to-wave changes, we cannot separate these differential responses from differential exposure to the labor-market cycle that accompanies policy.