Household portfolios and monetary policy

We show that expansionary monetary policy is positively (negatively) associated with household portfolio allocation to high-risk (low-risk) assets, in line with Şreaching for yieldŤ behaviour. Our main Ąndings are based on analysis of US household-level data using alternative measures of monetary policy shifts over the period 1999-2007. Using the two-part Fractional Response Model, we show that changes in the Federal Funds Rate (FFR) have a stronger impact on the decision to hold high-risk assets relative to the impact on the decision to hold low-risk assets. In addition, our Ąndings indicate that the impact of FFR changes is stronger for active investors. Finally, our Ąndings are robust over an extended time period (1999-2019) that includes the global Ąnancial crisis using a monetary policy measure that accounts for the post-crisis ZLB period.