Does the financial accelerator accelerate inequalities?

Francesco Ferlaino

No 538, Working Papers from University of Milano-Bicocca, Department of Economics

Abstract: This study examines the redistribution effects of a conventional monetary policy shock among households in the presence of production-side financial frictions. A Heterogeneous Agents New Keynesian model featuring a financial accelerator is built after empirical evidence for consumption inequality. The results show that the presence of financial frictions significantly increases the magnitude of the Gini coefficient of wealth and other wealth inequality measures after contractionary monetary policy, compared to a scenario in which such frictions are inactive, proving that firms’ financial characteristics affect household wealth inequality. Consumption dynamics are also affected: financial frictions have a significant impact on how households consume and save after a monetary contraction, because they rely differently on labor income to smooth consumption. The relative increase in consumption inequality confirms the empirical results obtained in this study.

Keywords: heterogeneous agents; financial frictions; monetary policy; New Keynesian models; inequalities; proxy-SVAR. (search for similar items in EconPapers)
JEL-codes: C32 E12 E21 E44 E52 G51 (search for similar items in EconPapers)
Pages: 60
Date: 2024-05
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-fdg and nep-fle
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