The Effect of Monetary Policy on Consumption Inequality: An Analysis of Transmission Channels through TANK Models

Momo Komatsu

Journal of Money, Credit and Banking, 2023, vol. 55, issue 5, 1245-1270

Abstract: What transmission channels drive the effect of monetary policy on consumption inequality? This paper investigates this question with tractable Two‐Agent New Keynesian models with search‐and‐matching frictions and wage rigidities. I make a distinction between credit‐constrained households and unconstrained households and find that an expansionary monetary policy shock decreases consumption inequality between those two households through three channels: (i) the income composition channel, through fluctuations in labor and profit income; (ii) the savings redistribution channel, through fluctuations in real interest rate; and (iii) the earnings heterogeneity channel, through fluctuations in unemployment. The results are in line with the empirical evidence.

Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:55:y:2023:i:5:p:1245-1270

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