EconPapers    
Economics at your fingertips  
 

The Transmission of Monetary Policy through Redistributions and Durable Purchases

Vincent Sterk and Silvana Tenreyro
Additional contact information
Vincent Sterk: University College London

Working Papers from Council on Economic Policies

Abstract: This paper studies a redistribution channel for the transmission of monetary policy. Using a tractable OLG setting in which the government is a net debtor, we show that standard open market operations (OMO) conducted by Central Banks have significant revaluation effects that alter the level and distribution of wealth in the economy and the real interest rate. Specifically, expansionary OMO generate a negative wealth effect (the private sector as a whole is a net creditor to the government), increasing households’ incentives to save for retirement and pushing down the real interest rate. This, in turn, leads to a substitution towards durables, generating a temporary boom in the durable good sector. With search and matching frictions, a form of productive investment is added to the model and the fall in interest rates causes an increase in labour demand, raising aggregate employment. The mechanism can mimic the empirical responses of key macroeconomic variables to monetary policy interventions. The model shows that different monetary interventions (e.g., OMO versus helicopter drops) can have sharply different effects on activity.

Pages: 44 pages
Date: 2016-01
New Economics Papers: this item is included in nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

Downloads: (external link)
https://www.cepweb.org/wp-content/uploads/CEP-WP-2 ... urable_Purchases.pdf (application/pdf)

Related works:
Journal Article: The transmission of monetary policy through redistributions and durable purchases (2018) Downloads
Working Paper: The transmission of monetary policy through redistributions and durable purchases (2018) Downloads
Working Paper: The Transmission of Monetary Policy through Redistributions and Durable Purchases (2015) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ceq:wpaper:1601

Access Statistics for this paper

More papers in Working Papers from Council on Economic Policies Contact information at EDIRC.
Bibliographic data for series maintained by Pierre Monnin ().

 
Page updated 2025-03-24
Handle: RePEc:ceq:wpaper:1601