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Monetary policy transmission, the labour share and HANK models

Jamie Lenney ()
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Jamie Lenney: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH

No 960, Bank of England working papers from Bank of England

Abstract: I analyse the role of capital income in the transmission of demand shocks, such as monetary policy shocks, in a medium scale DSGE model that produces an empirically consistent counter-cyclical response of the labour share to monetary policy shocks. This is achieved by augmenting the one sector New Keynesian model with an alternate form of labour that seeks to expand the measure of goods available to consumers. I compare and contrast the transmissions of monetary policy shocks in the one sector ‘textbook’ model relative to the augmented model in both a representative agent (RANK) and heterogeneous agent (HANK) setting that includes a fully endogenous wealth distribution. The comparison highlights the role of capital income in the transmission of monetary policy shocks in these models. When the labour share moves counter-cyclically partial equilibrium decomposition’s of monetary policy transmission show a significant contractionary role for capital income.

Keywords: DSGE; DCT; expansionary labour; HANK; inequality; intangible; New Keynesian; perturbation (search for similar items in EconPapers)
JEL-codes: D31 E12 E21 E52 L29 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2022-01-07
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0960

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