Household Portfolios and Monetary Policy

50 Pages Posted: 23 Apr 2022

See all articles by Raslan Alzuabi

Raslan Alzuabi

affiliation not provided to SSRN

Sarah Brown

University of Sheffield - Department of Economics; IZA Institute of Labor Economics

Alexandros Kontonikas

University of Essex

Alberto Montagnoli

University of Sheffield

Multiple version iconThere are 2 versions of this paper

Abstract

We show that expansionary monetary policy is associated with higher household portfolio allocation to high risk assets and lower allocation to low risk assets, in line with “reaching for yield” behaviour. Our main findings are based on analysis of US household level panel data using alternative measures of monetary policy shifts over the period 1999-2007. Using the two-part Fractional Response Model, we also show that changes in the Federal Funds Rate (FFR) have a stronger impact on the decision to hold high risk assets relative to the impact on the decision to hold low risk assets. Furthermore, our results highlight the role of self-reported risk attitudes in affecting the response of household portfolios to monetary policy changes. In addition, our findings indicate that the impact of FFR changes is stronger for active investors. Finally, our findings are robust over an extended time period (1999-2019) that includes the global financial crisis using a monetary policy measure that accounts for the post-crisis ZLB period.

Keywords: Fractional Response Models, Household Financial Portfolio Allocation, Monetary policy

Suggested Citation

Alzuabi, Raslan and Brown, Sarah and Kontonikas, Alexandros and Montagnoli, Alberto, Household Portfolios and Monetary Policy. Available at SSRN: https://ssrn.com/abstract=4091213 or http://dx.doi.org/10.2139/ssrn.4091213

Raslan Alzuabi

affiliation not provided to SSRN

Sarah Brown

University of Sheffield - Department of Economics

9 Mappin Street
Sheffield, S1 4DT
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Alexandros Kontonikas

University of Essex ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Alberto Montagnoli (Contact Author)

University of Sheffield

17 Mappin Street
Sheffield, S1 4DT
United Kingdom

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