The New Keynesian Transmission Mechanism: A Heterogenous-Agent Perspective

Tobias Broer, Öberg, Erik and Niels-Jakob Hansen
Authors registered in the RePEc Author Service: Per Krusell and Erik Öberg

No 11382, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We argue that a 2-agent version of the standard New Keynesian model—where a “worker†receives only labor income and a “capitalist†only profit income— offers insights about how income inequality affects the monetary transmission mechanism. Under rigid prices, monetary policy affects the distribution of consumption, but it has no effect on output as workers choose not to change their hours worked in response to wage movements. In the corresponding representativeagent model, in contrast, hours do rise after a monetary policy loosening due to a wealth effect on labor supply: profits fall, thus reducing the representative worker’s income. If wages are rigid too, however, the monetary transmission mechanism is active and resembles that in the corresponding representative-agent model. Here, workers are not on their labor supply curve and hence respond passively to demand, and profits are procyclical.

Keywords: Monetary transmission; Heterogeneous agents; Inequality; New keynesian model (search for similar items in EconPapers)
JEL-codes: E31 E32 E52 (search for similar items in EconPapers)
Date: 2016-07
New Economics Papers: this item is included in nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (39)

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Related works:
Journal Article: The New Keynesian Transmission Mechanism: A Heterogeneous-Agent Perspective (2020)
Working Paper: The New Keynesian Transmission Mechanism: A Heterogeneous-Agent Perspective (2020)
Working Paper: The New Keynesian Transmission Mechanism: A Heterogeneous-Agent Perspective (2020)
Working Paper: The New Keynesian Transmission Mechanism: A Heterogenous-Agent Perspective (2016)
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