Household Consumption and Unconventional Monetary Policy: Insights from a Bayesian SVAR Model

Abstract

This study uses a Bayesian SVAR to demonstrate that movements in household consumption can be explained by expansionary credit easing policy. The latter reflects ongoing heterodox monetary policy regimes in many countries, especially emerging markets and developing economies (EMDEs). Using Nigeria’s data over the period from Q1 1995 to Q4 2018, the empirical analysis reveals that the role of credit easing in the household consumption is not important in Nigeria, as a large part of the variation in household consumption can be explained by shocks to other economic activities. The findings also indicate a rough estimate that the impact threshold of credit easing on household consumption is no more than 2 percent, thus requiring accelerators and accelerator policy to overcome the threshold. Our results suggest the need for a broad-based policy response to fully maximize the positive effect of credit supply shock on private spending and aggregate demand in general.