Quantitative easing with heterogeneous agents

Wei Cui and Vincent Sterk

Journal of Monetary Economics, 2021, vol. 123, issue C, 68-90

Abstract: We study the effects of Quantitative Easing (QE) in a heterogeneous-agents model with liquid and partially liquid wealth, and nominal rigidities. The direct macroeconomic effect of QE is determined by the difference in marginal propensities to consume out of the two types of wealth, which is large according to empirical studies. Therefore, the effects of QE on aggregate output and inflation are significant, according to the model. Indeed, the estimated model reveals that QE interventions greatly dampened the U.S. Great Recession, by expanding household liquidity. However, QE may have strong and adverse distributional effects, compared to interest rate policy.

Keywords: Monetary policy; Large-scale asset purchases; Household liquidity (search for similar items in EconPapers)
JEL-codes: E21 E30 E50 E58 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:123:y:2021:i:c:p:68-90

DOI: 10.1016/j.jmoneco.2021.07.007

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