Monetary Policy and Redistribution in Open Economies

Xing Guo, Pablo Ottonello and Diego Perez

Staff Working Papers from Bank of Canada

Abstract: This paper examines how monetary policy affects the asymmetric effects of globalization. We build an open-economy heterogeneous-agent New Keynesian model (HANK) in which households differ in their income, wealth, and real and financial integration with international markets. We use the model to reassess classic questions in international macroeconomics, but from a distributional perspective: What are the effects of monetary policy and external shocks in open economies? And how do alternative exchange-rate regimes compare? Our analysis yields two main takeaways. First, heterogeneity in households’ international integration is a central dimension that drives the inequality in the consumption responses to external shocks more so than do income and wealth. Second, households’ heterogeneity reveals the presence of a stabilization-inequality trade-off for the conduct of monetary policy in open economies, with fixed exchange-rate regimes leading to amplified but less unequal consumption responses to external shocks.

Keywords: Monetary policy; Exchange rate regimes (search for similar items in EconPapers)
JEL-codes: E32 E52 F41 F44 (search for similar items in EconPapers)
Pages: 83 pages
Date: 2022-02
New Economics Papers: this item is included in nep-dge, nep-his, nep-mac, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Monetary Policy and Redistribution in Open Economies (2023)
Working Paper: Monetary Policy and Redistribution in Open Economies (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:22-6

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