Monetary Policy and Reaching for Income

摘要

Using data on individual portfolio holdings and on mutual fund flows, we find that low interest rates lead to significantly higher demand for income-generating assets such as high-dividend stocks and high-yield bonds. We argue that this "reaching-for-income" phenomenon is driven by investors who follow the "living off income" rule-of-thumb. Our empirical analysis shows that this preference for current income affects both household portfolio choices and the prices of income-generating assets. In addition, we explore the implications of reaching for income for capital allocation and the effectiveness of monetary policy.