Global | The Short Lags of Monetary Policy

Keynote Lecture at the Swiss National Bank for the CEPR European Household Finance Annual Conference. This analysis, based on high-frequency data from Spain, challenges the idea that monetary policy has long lags. It shows that consumption and sales react within days or weeks to monetary shocks.

Key points

• Key points:
• After a contractionary monetary shock, sales show a detectable fall in 4 days, with a trough of -0.50% on day 51. Consumption reacts in the first week, reaching a trough of -0.39% on day 44.
• The consumption response is heterogeneous: spending on durables, semi-durables, and luxuries contracts by 1% to 2% within the first 60 days, while spending on necessities remains relatively stable.
• The transmission through the production chain is gradual. "Downstream" sectors (closer to the final consumer) react within a month, while "upstream" sectors (suppliers) react after about 60 days.
• Household credit falls 0.37% in the first month, outpacing corporate credit. Mortgage rates rise instantly (+1bp) and house prices drop significantly from month 3 (trough of -0.35% at month 6).
• The adjustment in employment is slow, with temporary contracts reacting on impact and permanent contracts only at the end of the first year. The CPI response is gradual, with a decline of -0.2 pp at month 11.

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