Essays on household finance and monetary policy

The dissertation consists of three chapters that analyze topics in household finance and the transmission of monetary policy. In each chapter, I find evidence for heterogeneous effects, either because households with different leverage adjust consumption after house price changes differently, or households differ in their housing tenure transitions in response to a change of monetary policy, or monetary policy transmits differently to labour market outcomes across the income distribution. The first chapter analyzes the consumption effects of house price changes for homeowners in Italy. I use an Italian panel dataset that contains information on household incomes and balance sheets. In contrast to findings of the existing empirical literature for the US and UK, the effect of house prices on consumption is small in Italy. In line with theoretical models, I show that the effect is largest for households close to their borrowing constraint. Thus, the smaller consumption response in Italy relative to the US and UK may be explained by the lower leverage of Italian households. The second chapter investigates the transmission of monetary policy to the housing markets in Germany, Italy and Switzerland. We identify monetary policy shocks using high-frequency data on interest rate expectations and combine it with household panel datasets. We show that monetary policy transmits to short and long term yields and mortgage rates and therefore to the user costs of housing. We estimate that interest rate cuts lead to transitions from renting to owning in Germany and Switzerland but not in Italy. Within Italy, households from financially more developed regions react more strongly by becoming homeowners, in line with a stronger effect on mortgage rates in these regions. In the third chapter, I estimate the effect of monetary policy on labour market outcomes across the income distribution in Switzerland, a country with a high employment rate and a high level of working hours compared to other European countries. I show that, in line with findings from other countries, policy rate cuts lead to lower household income inequality. I find that for Switzerland, the reduction of income inequality is caused by an increase of labour income and labour supply at the bottom of the household income distribution, both at the intensive and extensive margin. Further, individuals that work in more elementary occupations and in the Italian- and French-speaking regions of Switzerland gain more from interest rate cuts.