Philip R Lane: Households and the transmission of monetary policy

Speech by Mr Philip R Lane, Member of the Executive Board of the European Central Bank, at the Central Bank of Ireland/ECB Conference on Household Finance and Consumption, Dublin, 16 December 2019.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Introduction

It is a special pleasure to speak at the Sixth Conference on Household Finance and Consumption, which is jointly organised this year by the Central Bank of Ireland and the European Central Bank.^[1] The engine behind this conference series is the Eurosystem's Household Finance and Consumption Network, which coordinates the Household Finance and Consumption Survey (HFCS). The HFCS gives us an insight into the distributions of assets, liabilities and incomes across euro area households. It is very promising that many of you, together with other researchers, are using this dataset to improve our understanding of key features of economic behaviour in Europe.

In my remarks today, I wish to discuss the relevance of differences across households for macroeconomic outcomes and the transmission of monetary policy. Households differ across many dimensions: age, geography, employment, income, wealth, assets, and debt. It follows that the impact of a macroeconomic shock or a shift in monetary policy will naturally vary across households. In turn, understanding how shocks and policies affect different types of households has the potential to improve our modelling of aggregate dynamics compared with the restrictive approach of imposing that aggregate household behaviour can be adequately represented by a single, representative household. Moreover, the examination of household-level data is also important in measuring the distributional impact of macroeconomic shocks and macro-financial policy decisions, which can help inform wider policy discussions about income distribution.