publication

We exploit Germany’s temporary three-percentage-point VAT cut in the second half of 2020 to study the spending response to unconventional fiscal policy. We use survey and scanner data on household consumption expenditures and their perceived pass-through of the tax change into prices and a HANK model to quantify the effects of this VAT policy. The survey and scanner data show that the temporary VAT reduction led to a relative increase in durable and, to a lesser extent, semi-durable spending for individuals with high perceived pass-through. According to the HANK model, the VAT policy increased total aggregate consumption spending by 4.4 percent on impact.

We construct a unified series of narrative monetary policy shocks for the U.S. that spans both conventional and unconventional policy episodes, combining Romer and Romer’s identification with Wu and Xia’s shadow rate. The methodological consistency across regimes allows us to formally test whether monetary policy transmission differs at the zero lower bound. Structural-break tests cannot reject equality of aggregate peak responses, but strongly reject it for wealth inequality. Expansionary unconventional shocks increase wealth inequality-the opposite of conventional easing-because stock prices rise disproportionately relative to house prices, benefiting equity-heavy households at the top of the distribution.