Monetary Policy, Income Distribution and Semi-Autonomous Demand in the US

We empirically explore the role of monetary and distribution shocks on semi-autonomous demand under a supermultiplier framework. We use quarterly data for the United States from 1968 to 2022 and apply a SVAR model to investigate the effect of changes in financial and distributive variables on autonomous expenditure. We find that: (i) the federal funds rate has a negative and statistically significant effect on autonomous expenditure; (ii) a positive shock in the wage share has a negative effect on non-revolving consumer credit and a transitory positive effect on induced consumption; (iii) a positive shock in aggregated autonomous demand has a positive, persistent, and significant effect on induced consumption and, output, as well as on the adjusted wage share; (iv) a positive shock in private residential investment has a positive, persistent and statistically significant effect on other autonomous components of demand and output; (v) while residential investment positively influences consumer credit and durable consumption, the inverse does not hold.