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Interest Rate Prominence in Consumer Decisionmaking

33 Pages Posted: 12 Jan 2017  

Carola Conces Binder

Haverford College - Department of Economics

Date Written: January 11, 2017

Abstract

Variations in consumers' responsiveness to interest rates across households and over time may have important implications for monetary transmission. Survey questions from the Michigan Survey of Consumers provide an indication of the degree to which interest rates are a prominent consideration in consumers' decision to buy durables, cars, and housing, and in their perceptions of their financial situation. Interest rates are more prominent in housing than in car and durable decisions, and low interest rates are more prominent than high rates. Interest rate prominence increases with income, education, and homeownership, and has declined since the Great Recession. Interest rate prominence is associated with a stronger responsiveness of consumption attitudes to monetary policy shocks.

Keywords: Consumption, consumer durables, expectations, rational inattention, monetary transmission, interest rate channel

JEL Classification: D84, D91, E21, E40, E50

Suggested Citation

Binder, Carola Conces, Interest Rate Prominence in Consumer Decisionmaking (January 11, 2017). Available at SSRN: https://ssrn.com/abstract=2897699

Carola Binder (Contact Author)

Haverford College - Department of Economics ( email )

Haverford, CT 19041
United States

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