Main points:
- The study uses credit card expenditure data to examine how monetary policy affects private consumption expenditure in Israel.
- The analysis indicates that monetary tightening through a one percentage point increase in the interest rate reduces private consumption expenditure (domestic, excluding housing) by up to approximately 5 percent in the first six months following the interest rate hike, and by about 2 percent on average during the year following the interest rate hike.
- Interest rate increases have varying impacts on different components of private consumption expenditure. They significantly reduce consumption of leisure services, which has a higher weight in the consumption of households in the upper quintile; reduce the consumption of manufacturing products and of services; but do not affect food consumption, which has a higher weight in the expenditures of the lower quintile.
- The study shows that the interest rate increases since April 2022 have moderated private consumption and can explain the relatively slow growth of consumption in the following year.
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