Inequality and the zero lower bound

Jesus Fernandez-Villaverde, Joël Marbet, Galo Nuño and Omar Rachedi

Journal of Econometrics, 2025, vol. 249, issue PC

Abstract: This paper studies how household inequality shapes the effects of the zero lower bound (ZLB) on nominal interest rates on aggregate dynamics. To do so, we consider a heterogeneous agent New Keynesian (HANK) model with an occasionally binding ZLB and solve for its fully nonlinear stochastic equilibrium using a novel neural network algorithm. In this setting, changes in the monetary policy stance influence households’ precautionary savings by altering the frequency of ZLB events. As a result, the model features monetary policy non-neutrality in the long run. The degree of long-run non-neutrality, i.e., by how much monetary policy shifts real rates in the ergodic distribution of the model, can be substantial when we combine low inflation targets and high levels of wealth inequality.

Keywords: Heterogeneous agents; HANK models; Neural networks; Nonlinear dynamics (search for similar items in EconPapers)
JEL-codes: D31 E12 E21 E31 E43 E52 E58 (search for similar items in EconPapers)
Date: 2025
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Related works:
Working Paper: Inequality and the zero lower bound (2024)
Working Paper: Inequality and the Zero Lower Bound (2023)
Working Paper: Inequality and the Zero Lower Bound (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:249:y:2025:i:pc:s0304407624001647

DOI: 10.1016/j.jeconom.2024.105819

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