Monetary Policy and Reaching for Income
59 Pages Posted: 16 Aug 2018 Last revised: 17 Aug 2020
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Monetary Policy and Reaching for Income
Monetary Policy and Reaching for Income
Date Written: April 15, 2018
Abstract
Using data on individual portfolio holdings and on mutual fund flows, we find that low interest rates lead to a significantly higher demand for income-generating assets such as high-dividend stocks and high-yield bonds. We argue that this "reaching for income" phenomenon is driven by investors who follow the rule-of-thumb of "living off income." Our empirical analysis shows that this preference for current income affects both household portfolio choices and the prices of income-generating assets. In addition, we explore the implications of reaching for income for capital allocation and the effectiveness of monetary policy.
Keywords: reaching for income, monetary policy
JEL Classification: E50, G40, G11
Suggested Citation: Suggested Citation