Doves for the Rich, Hawks for the Poor? Distributional Consequences of Monetary Policy

Keith Kuester, Nils Gornemann and Makoto Nakajima ()

No 11233, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We build a New Keynesian business-cycle model with rich household heterogeneity. A central feature is that matching frictions render labor-market risk countercyclical and endogenous to monetary policy. Our main result is that a majority of households prefer substantial stabilization of unemployment even if this means deviations from price stability. A monetary policy focused on unemployment stabilization helps "Main Street" by providing consumption insurance. It hurts "Wall Street" by reducing precautionary saving and, thus, asset prices. On the aggregate level, household heterogeneity changes the trans mission of monetary policy to consumption, but hardly to GDP. Central to this result is allowing for self-insurance and aggregate investment.

Keywords: Monetary policy; Unemployment; Search and matching; Heterogeneous agents; General equilibrium (search for similar items in EconPapers)
JEL-codes: E12 E21 E24 E32 E52 J64 (search for similar items in EconPapers)
Date: 2016-04
New Economics Papers: this item is included in nep-dge and nep-mac
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Citations: View citations in EconPapers (224)

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