The Great Redistribution that Wasn’t: a HANK-OLG Perspective on Monetary Policy

Michal Brzoza-Brzezina and Rodolfo Rigato
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Rodolfo Rigato: European Central Bank

No 382, NBP Working Papers from Narodowy Bank Polski

Abstract: We study the distributional consequences of the recent inflationary surge and the subsequent monetary policy response in the euro area. Using an estimated two-asset Heterogeneous Agent New Keynesian model with an overlapping generations structure, we analyze the macroeconomic shocks driving inflation between 2021 and 2022. We find that these shocks generated substantial redistribution from young and poor households toward older and wealthier ones. By keeping interest rates unchanged until mid-2022, monetary policy largely offset these distributional effects. A policy response based solely on a standard Taylor rule would have failed to mitigate the redistribution.

Keywords: Monetary policy; Redistribution; HANK; OLG; Euro area; Great Inflation (search for similar items in EconPapers)
JEL-codes: D31 E31 E52 E58 (search for similar items in EconPapers)
Pages: 52
Date: 2026
Note: The views expressed here are solely those of the authors and do not reflect the views of Narodowy Bank Polski or the European Central Bank. We wish to thank an anonymous referee and the participants of the UEK Workshop on Macroeconomic Research, the EUI-UW conference “Widening Horizons of Macroeconomic Research” and of the seminars at the European Central Bank and Narodowy Bank Polski for useful comments. Part of the project was conducted when Michał Brzoza-Brzezina was visiting the European Central Bank.
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Working Paper: The great redistribution that wasn’t: a HANK-OLG perspective on monetary policy (2026)
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