Abstract for: Effectiveness of Interest rate policy in Stimulating Household Consumption

The aim of this paper is to analyse in more depth the effects of interest rate policy on the household sector. Originally, SD model served as a supplementary tool of analysis. VAR model showed that on aggregate interest rate policy is able to stimulate household consumption via wealth effects and indirect, labour income channels. However, it revealed little about cash flow and saving channels. Therefore, System Dynamics model was built to explore them in more detail. The next step in developing the model would be to include it in a complete macro model with business sector, government, financial system and external sector. The goal is to have a model that could endogenously generate realistic data patterns for all variables of main channels of monetary policy transmission, especially the labour income. Looking forward to comments and suggestions for this work in progress paper.