The European Central Bank published a working paper analysing how euro area household consumption responds to monetary policy shocks when spending is classified by durability and essentiality. The paper finds large differences across categories, with durable goods and non-essential items reacting much more strongly to monetary tightening than non-durables and essentials, and with durable non-essential items showing the largest declines. Using annual Eurostat household consumption data (42 COICOP categories) for ten euro area countries and monetary policy shocks identified from high-frequency surprises around ECB announcements, the authors estimate impulse responses with panel local projections over 2002–2019. Durables account for about 15% of consumption, while essential and non-essential categories are each about half; both durability and essentiality independently explain sensitivity to shocks. At the item level, purchase of vehicles and other major durables for recreation and culture are among the most sensitive categories, while items such as narcotics and electricity, gas and other fuels show no significant response; the results are supported by alternative panel specifications and robustness checks using different shock constructions and interest-rate controls. The paper notes that it reflects the authors’ views and not necessarily those of the ECB.
European Central Bank 2025-10-01
European Central Bank working paper finds durable and non-essential spending is most sensitive to monetary policy shocks
The European Central Bank's working paper examines euro area household consumption's response to monetary policy shocks, noting significant differences based on durability and essentiality. Durable goods and non-essential items, especially vehicles and major recreational durables, react strongly to monetary tightening, while essentials like narcotics and utilities remain unaffected. The study uses Eurostat data and high-frequency ECB announcement surprises, representing the authors' views, not the ECB's.