The great redistribution that wasn’t: a HANK-OLG perspective on monetary policy

Michal Brzoza-Brzezina and Rodolfo Dinis Rigato

No 3197, Working Paper Series from European Central Bank

Abstract: We study the distributional consequences of the recent inflationary surge and the subsequent monetary policy response in the euro area. Using an estimated two-asset Heterogeneous Agent New Keynesian model with an overlapping generations structure, we analyze the macroeconomic shocks driving inflation between 2021 and 2022. We find that these shocks generated substantial redistribution from young and poor households toward older and wealthier ones. By keeping interest rates unchanged until mid-2022, monetary policy largely offset these distributional effects. A policy response based solely on a standard Taylor rule would have failed to mitigate the redistribution. JEL Classification: E31, E52, E58, D31

Keywords: Euro area; great inflation; HANK; monetary policy; OLG; redistribution (search for similar items in EconPapers)
Date: 2026-02
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20263197

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