Redistributive Inflation and Optimal Monetary Policy

Yucheng Yang
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Yucheng Yang: University of Zurich; Swiss Finance Institute

No 25-07, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Inflation has heterogeneous impacts on households, which then affects optimal monetary policy design. I study optimal monetary policy rules in a quantitative heterogeneous agent New Keynesian (HANK) model where inflation has redistributive effects on households through their different (1) consumption baskets, (2) nominal wealth positions, and (3) earnings elasticities to business cycles. I parameterize the model based on the empirical analysis of these channels using the most recent data. Unlike in representative agent models, a utilitarian central bank should adopt an asymmetric monetary policy rule that is accommodative towards inflation and aggressive towards deflation. Specifically, by accommodating stronger demand and higher inflation, the central bank benefits low-income and low-wealth households through nominal debt devaluation and higher earnings growth.

Keywords: Redistributive Inflation; Optimal Monetary Policy; Heterogeneous Agent; Expenditure Channel; Revaluation Channel; Earnings Channel (search for similar items in EconPapers)
Pages: 45 pages
Date: 2025-01
New Economics Papers: this item is included in nep-cba, nep-dge, nep-inv and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2507

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