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Monetary Policy, Redistribution, and Risk Premia

Rohan Kekre and Moritz Lenel

No 28869, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study the transmission of monetary policy through risk premia in a heterogeneous agent New Keynesian environment. Heterogeneity in households' marginal propensity to take risk (MPR) summarizes differences in portfolio choice on the margin. An unexpected reduction in the nominal interest rate redistributes to households with high MPRs, lowering risk premia and amplifying the stimulus to the real economy. Quantitatively, this mechanism rationalizes the role of news about future excess returns in driving the stock market response to monetary policy shocks and amplifies their real effects by 1.3-1.4 times.

JEL-codes: E44 E52 G12 (search for similar items in EconPapers)
Date: 2021-05
New Economics Papers: this item is included in nep-cwa, nep-dge, nep-mac, nep-mon and nep-upt
Note: AP EFG ME
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Citations: View citations in EconPapers (7)

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Journal Article: Monetary Policy, Redistribution, and Risk Premia (2022) Downloads
Working Paper: Monetary Policy, Redistribution, and Risk Premia (2020) Downloads
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