Capital and income inequality: An aggregate-demand complementarity

Florin Bilbiie, Diego Känzig and Paolo Surico

Journal of Monetary Economics, 2022, vol. 126, issue C, 154-169

Abstract: A novel complementarity between capital and income inequality leads to a significant amplification of the effects of aggregate-demand shocks on consumption. We characterize this finding using a simple model with heterogeneity in household saving and income, nominal rigidities, and capital. A fiscal policy that redistributes capital income causes further amplification, whereas redistributing profits generates dampening. After an interest rate shock, consumption inequality is more countercyclical than income inequality, consistent with the available empirical evidence. Procyclical investment also requires a more aggressive Taylor rule in order to attain determinacy, and aggravates the forward guidance puzzle.

Keywords: Capital; Income inequality; Aggregate demand; Complementarity; Monetary policy; Heterogeneity (search for similar items in EconPapers)
JEL-codes: E21 E22 E32 E44 E52 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304393222000149
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Capital and Income Inequality: An Aggregate-Demand Complementarity (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:126:y:2022:i:c:p:154-169

DOI: 10.1016/j.jmoneco.2022.01.002

Access Statistics for this article

Journal of Monetary Economics is currently edited by R. G. King and C. I. Plosser

More articles in Journal of Monetary Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().