Redistributive Policy Shocks and Monetary Policy with Heterogeneous Agents

Ojasvita Bahl (), Chetan Ghate and Debdulal Mallick
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Ojasvita Bahl: Indian Statistical Institute, Delhi

Discussion Papers from Indian Statistical Institute, Delhi

Abstract: Governments in EMDEs routinely intervene in agriculture markets to stabilize food prices in the wake of adverse domestic or external shocks. Such interventions typically involve a large increase in the procurement and redistribution of food, which we call a redistributive policy shock. What is the impact of a redistributive policy shock on the sectoral and aggregate dynamics of ináation, and the distribution of consumption amongst rich and poor households? To address this, we build a tractable two-sector (agriculture and manufacturing) two-agent (rich and poor) New Keynesian DSGE model with redistributive policy shocks. We calibrate the model to the Indian economy. We show that for an ináation targeting central bank, consumer heterogeneity matters for whether monetary policy responses to a variety of shocks raises aggregate welfare or not. Our paper contributes to a growing literature on understanding the role of consumer heterogeneity in monetary policy

Keywords: TANK models; HANK Models; Ináation Targeting; Emerging Market and Developing Economies; Food Security; Procurement and Redistribution; DSGE (search for similar items in EconPapers)
JEL-codes: E31 E32 E44 E52 E63 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2020-07
New Economics Papers: this item is included in nep-dge and nep-mon
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Related works:
Working Paper: Redistributive Policy Shocks and Monetary Policy with Heterogeneous Agents (2024)
Working Paper: Redistributive Policy Shocks And Monetary Policy With Heterogeneous Agents (2022)
Working Paper: Redistributive Policy Shocks and Monetary Policy with Heterogeneous Agents (2020)
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