Inequality and the Zero Lower Bound

Jesus Fernandez-Villaverde, Joël Marbet, Galo Nuño Barrau and Omar Rachedi

No 10471, CESifo Working Paper Series from CESifo

Abstract: This paper studies how household inequality shapes the effects of the zero lower bound (ZLB) on nominal interest rates on aggregate dynamics. To do so, we consider a heterogeneous agent New Keynesian (HANK) model with an occasionally binding ZLB and solve for its fully nonlinear stochastic equilibrium using a novel neural network algorithm. In this setting, changes in the monetary policy stance influence households’ precautionary savings by altering the frequency of ZLB events. As a result, the model features monetary policy non-neutrality in the long run. The degree of long-run non-neutrality, i.e., by how much monetary policy shifts real rates in the ergodic distribution of the model, can be substantial when we combine low inflation targets and high levels of wealth inequality.

Keywords: heterogeneous agents; HANK models; neural networks; non-linear dynamics (search for similar items in EconPapers)
JEL-codes: D31 E12 E21 E31 E43 E52 E58 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.cesifo.org/DocDL/cesifo1_wp10471.pdf (application/pdf)

Related works:
Working Paper: Inequality and the zero lower bound (2024)
Working Paper: Inequality and the Zero Lower Bound (2023)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_10471

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().