Does the FED care about income inequality? A quantitative examination

Stuart J. Fowler and Jennifer J. Fowler

International Journal of Monetary Economics and Finance, 2017, vol. 10, issue 2, 183-205

Abstract: We model various policy rules in settings that have non-trivial impacts on inequality. The policy rule that best describes the data is one that incorporates the Gini as an important component. In this case, a temporary and unexpected change to a more accommodative policy leads to a temporary improvement in inequality. Additionally, when there is deterioration in inequality, policy becomes more accommodative with a lag. For most calibrations, the reactionary policy rule benefits the workers at the cost of the capitalists; lifetime consumption of the worker is made smoother which increases their elasticity for labour resulting in a destabilised economy that is costly to the capital owners.

Keywords: inflation; income distribution; heterogeneous agents; inequality; accommodative monetary policy; VAR; Gini. (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:ids:ijmefi:v:10:y:2017:i:2:p:183-205

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