Monetary Policy and Wealth Effects: The Role of Risk and Heterogeneity

Nicolas Caramp and Dejanir H. Silva

No 11049, CESifo Working Paper Series from CESifo

Abstract: We study the role of asset revaluation in the monetary transmission mechanism. We build an analytical heterogeneous-agents model with two main ingredients: i) rare disasters; ii) heterogeneous beliefs. The model captures time-varying risk premia and precautionary savings in a setting that nests the textbook New Keynesian model. The model generates large movements in asset prices after a monetary shock but these movements can be neutral on real variables. Real effects depend on the redistribution among agents with heterogeneous precautionary motives. In a calibrated exercise, we find that this channel accounts for the majority of the transmission to output.

Keywords: monetary policy; wealth effects; asset prices; aggregate risk; heterogeneity beliefs (search for similar items in EconPapers)
JEL-codes: E21 E44 E52 G12 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-fdg, nep-mac, nep-mon and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_11049

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