Financial Assets Holding and Monetary Policy Transmission:Revealing the Balance Sheet Channel
Consumption plays a crucial role in driving economic growth and improving livelihoods.This paper ex-amines the impact of monetary policy shocks on household consumption through changes in the value of financial assets held by households in China.Utilizing household-level microdata,the study constructs a monetary policy shock index to identify the balance sheet channel of monetary policy transmission.The results indicate that,first,during periods of loose monetary policy,the value of net financial assets held by households increases,leading to higher levels of con-sumer spending and optimization of household consumption structures.Second,even when controlling for the cash flow channel of monetary policy,the expansionary effect on consumption persists,suggesting that the balance sheet channel is dominant in monetary policy transmission.Third,as financial literacy among residents improves,the balance sheet chan-nel becomes more pronounced.This study provides direct empirical evidence on how monetary policy affects household consumption through changes in net financial asset prices,offering valuable insights for policymakers aiming to stimu-late consumption through monetary interventions.
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