Monetary Policy and Inequality: A Two-way Relation

Luzie Thiel ()
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Luzie Thiel: University of Kassel

MAGKS Papers on Economics from Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung)

Abstract: We study the transmission of monetary policy in the presence of heterogeneous households and examine the implications when the share of constrained households is a function of monetary policy. We build an analytically tractable heterogeneous agent New Keynesian model (THANK) with an endogenous share of hand-to-mouth households. The transmission of monetary policy on aggregate demand is amplified in this setup by inequality between saver and hand-to-mouth households. The amplification effect depends on monopolistic rents (enhancing) and redistribution (mitigating). Unlike most THANK models, we refrain from the assumption of a full insurance steady state.

Keywords: Monetary Policy; Heterogeneous Households; Inequality; Aggregate Demand; Complementarity; Financial Conditions; Imperfect Insurance (search for similar items in EconPapers)
JEL-codes: E12 E21 E44 E52 E58 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2023
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:mar:magkse:202304

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