 Optimal monetary policy and liquidity with heterogeneous householdsFlorin Bilbiie and Xavier Ragot Post-Print from HAL Abstract: A liquidity-insurance motive for monetary policy operates when heterogeneous households use government-provided liquidity ("money") to insure idiosyncratic risk. In our tractable sticky-price model this changes the central bank's trade-off by adding a linear benefit of insurance in the second-order approximation to aggregate welfare. Inflation volatility hinders the consumption volatility of constrained households as a side-effect of liquidity-insuring them; but price stability has quantitatively significant welfare costs only when monopolistic rents are also large, which indicates a complementarity between imperfect-insurance and New-Keynesian distortions. Helicopter drops are welfare-superior to open-market operations to achieve insurance, but quantitatively their benefit is surprisingly small. Date: 2020-09 Published in Review of Economic Dynamics, 2020, 41, pp.71-95. ⟨10.1016/j.red.2020.10.003⟩ There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03100875 DOI: 10.1016/j.red.2020.10.003 Access Statistics for this paper More papers in Post-Print from HAL |
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