Effects of different financial frictions on households

Francesco Ferlaino

No 263, Working Papers in Public Economics from Department of Economics and Law, Sapienza University of Roma

Abstract: This study examines how different types of financial frictions influence household wealth and consumption inequality in response to a contractionary monetary policy shock. The analysis considers two key frictions: those affecting production firms and those related to household borrowing, both incorporated into a HANK model. The results suggest that frictions in the productive sector have a stronger impact on wealth inequality, whereas frictions in household borrowing lead to greater consumption dispersion relative to the counterfactual scenario. This divergence primarily arises from dynamics around the zero-wealth threshold, particularly the behavior of the household borrowing spread.

Keywords: Heterogeneous agents; financial frictions; monetary policy; New Keynesian models; inequalities (search for similar items in EconPapers)
JEL-codes: E12 E21 E44 E52 G51 (search for similar items in EconPapers)
Pages: 53
Date: 2025-05
New Economics Papers: this item is included in nep-dge, nep-fdg and nep-mon
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