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Redistribution and Optimal Monetary Policy: Results and Open Questions

Stefania Albanesi ()

Rivista di Politica Economica, 2007, vol. 97, issue 4, 3-48

Abstract: What are the properties of optimal fiscal and monetary policies with heterogeneous agents? This is a pressing question, given the wealth of evidence on heterogeneity in cash holdings and labor income. Yet, until recently it remained largely unexplored. In this paper, I show that with heterogeneity the Friedman rule is optimal only if positive nominal interest rates do not ameliorate constraints on redistribution. With an empirically plausible cross-sectional correlation between money holdings and labor income, the Friedman rule is optimal if the government favors redistribution to the poor. I discuss these findings and propose several directions for future research.

JEL-codes: E52 E61 E63 H21 (search for similar items in EconPapers)
Date: 2007
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Handle: RePEc:rpo:ripoec:v:97:y:2007:i:4:p:3-48