The interest sensitivity of consumption and investment: Evidence from Norway

We use narrative monetary policy shocks and local projections to estimate the impact of monetary policy on consumption and investment. We use granular data to investigate how the response varies across consumption categories, investment types, and sectors. Our findings indicate that both consumption and investment respond - albeit with a notable lag - to monetary policy. The results reveal significant heterogeneity within the subcomponents of both consumption and investment. The consumption response is primarily driven by a drop in services consumption and consumption of durables, indicating that monetary policy also affects the composition of consumption. In terms of investment, the aggregate investment response is driven by tangible investment. Additionally, sectors with high interest costs relative to earnings, such as commercial real estate, are highly sensitive to monetary policy, whereas sectors such as manufacturing, are relatively unaffected.