The long-run redistributive effects of monetary policy

Christian Bustamante

Journal of Monetary Economics, 2023, vol. 140, issue C, 106-123

Abstract: Using a general equilibrium search-theoretic model of money, I study the long-run distributional effects of monetary policy. In my model, heterogeneous agents trade bilaterally in a frictional market and save using cash and illiquid short-term nominal government bonds. Wealth effects generate slow adjustments in agents’ portfolios following their trading activity in decentralized markets, giving rise to a persistent and non-degenerate distribution of assets. The model reproduces the distribution of asset levels and portfolios across households observed in the data. I show that, as wealth inequality increases the incidence of inefficiencies in decentralized trading, policies that improve the ability to self-insure against idiosyncratic shocks are welfare-improving and redistribute resources towards agents that are relatively poor and more liquidity constrained.

Keywords: Monetary economics; Search theory; Heterogeneous agents; Public liquidity (search for similar items in EconPapers)
JEL-codes: E21 E32 E52 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:140:y:2023:i:c:p:106-123

DOI: 10.1016/j.jmoneco.2023.08.003

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