The Inequality Channel of Monetary Transmission

Marta Areosa and Waldyr Areosa

No 114, Working Papers Series from Central Bank of Brazil, Research Department

Abstract: We study optimal monetary policy when inequality is present by introducing agents with different productivities, wages, and financial market accesses into a general equilibrium model with sticky prices. Our main results are: (i) There is a channel from interest rate to inflation throughout inequality; (ii) The welfare-based objective of monetary policy includes inequality stabilization; (iii) Higher levels of financial exclusion are associated to bigger welfare losses and to smaller interest rate variability, providing an alternative explanation to why observed interest rate paths are much less volatile than optimal policies implied by most theoretical models of the monetary transmission mechanism.

Date: 2006-08
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (12)

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Journal Article: The inequality channel of monetary transmission (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:bcb:wpaper:114

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