Inequality, Business Cycles, and Monetary-Fiscal Policy

Anmol Bhandari, David Evans, Mikhail Golosov and Thomas Sargent

No 24710, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study optimal monetary and fiscal policy in a model with heterogeneous agents, incomplete markets, and nominal rigidities. We develop numerical techniques to approximate Ramsey plans and apply them to a calibrated economy to compute optimal responses of nominal interest rates and labor tax rates to aggregate shocks. Responses differ qualitatively from those in a representative agent economy and are an order of magnitude larger. Taylor rules poorly approximate the Ramsey optimal nominal interest rate. Conventional price stabilization motives are swamped by an across person insurance motive that arises from heterogeneity and incomplete markets.

JEL-codes: C63 E52 E63 (search for similar items in EconPapers)
Date: 2018-06
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
Note: EFG ME PE
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Citations: View citations in EconPapers (24)

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Related works:
Journal Article: Inequality, Business Cycles, and Monetary‐Fiscal Policy (2021)
Working Paper: Inequality, Business Cycles, and Monetary-Fiscal Policy (2018)
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