We are happy to announce a joint event with Royal Statistical Society's section on Finance and Economics and The University of Sydney Business School with a seminar by Gianni La Cava, Research Director at the e61 Institute. We hope to see you there.
Any questions, please feel free to contact: secretary.nswbranch@statsoc.org.au.
Date: Thursday, 22nd August 2024
Time: 7.00pm - 8.00pm: Gianni La Cava, please join the speaker at Royal Hotel for dinner and drinks from 5.30pm.
Venue: Room 5040, Level 5, Business School Abercrombie Building, The University of Sydney and via Zoom
RSVP: Register at https://www.statsoc.org.au/event-5813124
Speaker: Gianni La Cava (e61 Institute)
Title: The Effects of Monetary Policy on Consumer Spending: Insights from Australian Bank Transaction Data
Abstract:
There is a consensus that higher interest rates slow economic activity by reducing household spending. In Australia, higher interest rates are believed to reduce household spending by increasing mortgage payments and reducing the cash flow of households with variable-rate mortgage debt – this is known as the `cash flow channel’ of monetary policy. But we know little about how this channel works in practice.
In this research, we quantify the cash flow channel of monetary policy in Australia using unique bank transactions data sourced from a large credit agency. We adopt an event study approach and examine how mortgage borrowers responded to the large increase in interest rates since the COVID-19 pandemic. We find that variable-rate borrowers responded to the higher mortgage payments by both reducing saving and spending. Our current estimates suggest that up to one-third of the effect was through reduced spending and at least two-thirds through lower rates of saving. The variable-rate borrowers were able to draw down on existing savings buffers that were built up during the COVID-19 pandemic.
Our results have important implications for understanding the transmission of monetary policy and highlight the importance of certain institutional features, such as mortgage offset and redraw accounts, that are relatively unique to Australia.
Biography:
Gianni is the Research Director at the e61 Institute. He previously held several senior positions at the Reserve Bank of Australia, including establishing an leading a research team - Micro Analysis and Data (MAD) - dedicated to examining macroeconomic issues using microeconomic data. He also worked at the Bank for International Settlements in Switzerland. Gianni holds a PhD in Economics from the London School of Economics and a Bachelor of Arts/Commerce from the University of Sydney. Gianni's research focuses on answering big policy questions with micro data and covers topics such as housing, wellbeing, and inequality.
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