The Last Mile of Monetary Policy: Inattention, Reminders, and the Refinancing Channel

From Shane Byrne, Kenneth Devine, Michael King, Yvonne McCarthy and Christopher Palmer

We test whether targeted communication can reduce the attention frictions that inhibit accommodative monetary policy transmission to the household sector. Analyzing a f ield experiment with 12,000 Irish households, we find that reminder letters increase refinancing 76%, from 8.9% to 15.7% in contrast to small effects of disclosure design improvements. Extending a model of inattentive financial decision-making to allow for experimental treatment effects, we estimate reminders increase refinancing by increasing borrower attentiveness by over 60%. Our results illustrate that direct communication can stimulate borrower consumption even when policy rates are constrained by a lower bound or set in a monetary union.