The New Keynesian Transmission Mechanism: A Heterogenous-Agent Perspective

Tobias Broer, Niels-Jakob H. Hansen, Per Krusell and Erik Öberg

No 22418, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We argue that a 2-agent version of the standard New Keynesian model—where a “worker” receives only labor income and a “capitalist” only profit income— offers insights about how income inequality affects the monetary transmission mechanism. Under rigid prices, monetary policy affects the distribution of consumption, but it has no effect on output as workers choose not to change their hours worked in response to wage movements. In the corresponding representative-agent model, in contrast, hours do rise after a monetary policy loosening due to a wealth effect on labor supply: profits fall, thus reducing the representative worker’s income. If wages are rigid too, however, the monetary transmission mechanism is active and resembles that in the corresponding representative-agent model. Here, workers are not on their labor supply curve and hence respond passively to demand, and profits are procyclical.

JEL-codes: E00 E32 (search for similar items in EconPapers)
Date: 2016-07
New Economics Papers: this item is included in nep-dge and nep-mac
Note: ME
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Citations: View citations in EconPapers (15)

Published as Tobias Broer & Niels-Jakob Harbo Hansen & Per Krusell & Erik Öberg, 2020. "The New Keynesian Transmission Mechanism: A Heterogeneous-Agent Perspective," The Review of Economic Studies, vol 87(1), pages 77-101.

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Journal Article: The New Keynesian Transmission Mechanism: A Heterogeneous-Agent Perspective (2020)
Working Paper: The New Keynesian Transmission Mechanism: A Heterogeneous-Agent Perspective (2020)
Working Paper: The New Keynesian Transmission Mechanism: A Heterogeneous-Agent Perspective (2020)
Working Paper: The New Keynesian Transmission Mechanism: A Heterogenous-Agent Perspective (2016)
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