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The inequality channel of monetary transmission

Waldyr Areosa () and Marta B.M. Areosa

Journal of Macroeconomics, 2016, vol. 48, issue C, 214-230

Abstract: We examine optimal monetary policy in the presence of inequality by introducing unskilled agents with no access to the financial system into a DSGE model with sticky prices. Our main results are: (i) a contractionary interest rate shock increases inequality, while inflation and the output gap fall; (ii) the welfare-based objective of monetary policy includes inequality stabilization; (iii) as the proportion of unskilled agents increases, welfare decreases; and (iv) under scarcity of skilled agents, monetary policy is weakened, while fiscal policy produces a more relevant impact on the economy.

Keywords: Inequality; Optimal monetary policy; Interest rate variability; Fiscal policy (search for similar items in EconPapers)
JEL-codes: E31 E32 E52 (search for similar items in EconPapers)
Date: 2016
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Working Paper: The Inequality Channel of Monetary Transmission (2006) Downloads
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Handle: RePEc:eee:jmacro:v:48:y:2016:i:c:p:214-230