Monetary policy effectiveness in a multi-sector model: The amplifying role of hand-to-mouth households
Article
Yilmazkuday, H. (2026). Monetary policy effectiveness in a multi-sector model: The amplifying role of hand-to-mouth households
. Journal of Macroeconomics, 89 10.1016/j.jmacro.2026.103776
Yilmazkuday, H. (2026). Monetary policy effectiveness in a multi-sector model: The amplifying role of hand-to-mouth households
. Journal of Macroeconomics, 89 10.1016/j.jmacro.2026.103776
This paper quantitatively investigates how the effectiveness of monetary policy varies with the share of hand-to-mouth (HtM) households across countries. We calibrate a multi-sector Two-Agent New Keynesian (TANK) model for a diverse sample of 65 economies, using country-specific empirical estimates for HtM household shares and detailed input–output data to discipline each country's production structure. Our central finding is that HtM households act as a powerful amplifier of the monetary transmission mechanism. A contractionary monetary policy shock induces a substantially larger and more rapid decline in aggregate consumption and real output in economies with a higher prevalence of HtM households. We find that the amplification effect is economically large, with the consumption response in high-HtM countries being an order of magnitude stronger than in low-HtM countries. This heterogeneity has significant implications, showing that the potency of monetary policy is not a universal constant but varies predictably with the financial structure of the household sector. Our results highlight the need for central banks, particularly in emerging markets, to calibrate policy with careful consideration of local household financial conditions.
