Doves for the Rich, Hawks for the Poor? Distributional Consequences of Systematic Monetary Policy

Nils Gornemann, Keith Kuester and Makoto Nakajima ()

No 50, Opportunity and Inclusive Growth Institute Working Papers from Federal Reserve Bank of Minneapolis

Abstract: We build a New Keynesian business-cycle model with rich household heterogeneity. In the model, systematic monetary stabilization policy affects the distribution of income, income risks, and the demand for funds and supply of assets: the demand, because matching frictions render idiosyncratic labor-market risk endogenous; the supply, because markups, adjustment costs, and the tax system mean that the average profitability of firms is endogenous. Disagreement about systematic monetary stabilization policy is pronounced. The wealth-rich or retired tend to favor inflation targeting. The wealth-poor working class, instead, favors unemployment-centric policy. One- and two-agent alternatives can show unanimous disapproval of inflation-centric policy, instead. We highlight how the political support for inflation-centric policy depends on wage setting, the tax system, and the portfolio that households have.

Keywords: Monetary policy; Unemployment; Search and matching; Heterogeneous agents; General equilibrium; Dual mandate (search for similar items in EconPapers)
JEL-codes: E12 E21 E24 E32 E52 J64 (search for similar items in EconPapers)
Pages: 122
Date: 2021-06-29
New Economics Papers: this item is included in nep-dge, nep-mac and nep-mon
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Citations: View citations in EconPapers (4)

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Working Paper: Doves for the Rich, Hawks for the Poor? Distributional Consequences of Systematic Monetary Policy (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmoi:93471

DOI: 10.21034/iwp.50

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