Income Inequality, Monetary Policy, and the Business Cycle

Stuart Fowler ()

No 200507, Working Papers from Middle Tennessee State University, Department of Economics and Finance

Abstract: The effects of changes in monetary policy are studied in a general equilibrium model where money facilitates transactions. Because there are two types of agents, workers and capitalists, different elasticities of money demand exist, implying that monetary policy influences the distribution of income. When earnings inequality is incorporated into monetary policy rule is the model able to replicate cyclical fluctuations of both real and nominal aggregates as well as the inequality measure. Additionally, monetary policy becomes more countercyclical when the fraction of transfers received by the workers increases.

Keywords: Inflation; Income Distribution; Heterogenous Agents; Perturbation (search for similar items in EconPapers)
JEL-codes: E32 E42 E50 (search for similar items in EconPapers)
Date: 2005-08
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Income Inequality, Monetary Policy, and the Business Cycle (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:mts:wpaper:200507

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