Redistributive Policy Shocks and Monetary Policy with Heterogeneous Agents

Ojasvita Bahl, Chetan Ghate and Debdulal Mallick

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: Governments in EMDEs routinely intervene in agriculture markets to stabilize food prices in the wake of adverse shocks. Such interventions involve a large increase in the procurement and redistribution of agriculture output, which we refer to as a redistributive policy shock. What is the impact of a redistributive policy shock on inflation and the distribution of consumption amongst rich and poor households? We build a two-sector-two-agent NK-DSGE model (2S-TANK) to address these questions. Using Indian data, we estimate the model using a Bayesian approach. We characterize optimal monetary policy. We show that the welfare costs of redistributive policy shocks are substantially higher when non-optimized rules are used to set monetary policy in response to such shocks.

Keywords: TANK models; inflation targeting; emerging market and developing economies; procurement and redistribution; NK-DSGE; welfare costs (search for similar items in EconPapers)
JEL-codes: E31 E32 E44 E52 E63 (search for similar items in EconPapers)
Pages: 78 pages
Date: 2024-09
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge and nep-mon
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https://cama.crawford.anu.edu.au/sites/default/fil ... hl_ghate_mallick.pdf

Related works:
Working Paper: Redistributive Policy Shocks And Monetary Policy With Heterogeneous Agents (2022)
Working Paper: Redistributive Policy Shocks and Monetary Policy with Heterogeneous Agents (2020)
Working Paper: Redistributive Policy Shocks and Monetary Policy with Heterogeneous Agents (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2024-59

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