The Transmission of Monetary Policy through Redistributions and Durable Purchases

Silvana Tenreyro and Vincent Sterk

No 10785, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The central explanation for how monetary policy transmits to the real economy relies critically on nominal rigidities, which form the basis of the New Keynesian (NK) framework. This paper studies a different transmission mechanism that operates even in the absence of nominal rigidities. We show that in an OLG setting, standard open market operations (OMO) carried by central banks have important revaluation effects that alter the level and distribution of wealth and the incentives to work and save for retirement. Specifically, expansionary OMO lead households to front-load their purchases of durable goods and work and save more, thus generating a temporary boom in durables, followed by a bust. The mechanism can account for the empirical responses of key macroeconomic variables to monetary policy interventions. Moreover, the model implies that different monetary interventions (e.g., OMO versus helicopter drops) can have different qualitative effects on activity. The mechanism can thus complement the NK paradigm. We study an extension of the model incorporating labor market frictions.

Keywords: Durable goods; Monetary policy; Open market operations; Redistributive effects of monetary policy; Transmission mechanism (search for similar items in EconPapers)
JEL-codes: E1 E31 E32 E52 E58 (search for similar items in EconPapers)
Date: 2015-08
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

Downloads: (external link)
https://cepr.org/publications/DP10785 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: The transmission of monetary policy through redistributions and durable purchases (2018)
Working Paper: The transmission of monetary policy through redistributions and durable purchases (2018)
Working Paper: The Transmission of Monetary Policy through Redistributions and Durable Purchases (2016)
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:cpr:ceprdp:10785

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP10785

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().