Monetary Policy and Reaching for Income
83 Pages Posted: 16 Aug 2018 Last revised: 8 Jun 2020
Date Written: April 15, 2018
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 analysis shows that households' preference for current income constitutes a new channel through which monetary policy affects consumption, portfolio choice, asset prices, and capital allocation in the economy.
Keywords: reaching for income, monetary policy
JEL Classification: E50, G40, G11
Suggested Citation: Suggested Citation