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Monetary Policy, Inflation, and Inequality: The Case for Helicopters

Xavier Ragot () and Florin O. Bilbiie
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Florin O. Bilbiie: Paris School of Economics

No 1663, 2016 Meeting Papers from Society for Economic Dynamics

Abstract: We put together a model where heterogenous households hold money because they particpate infrequently in financial markets, while firms face nominal frictions, as in the New Keynesian literature. We build a tractable framework whereby we characterize analytically the effect of money injections on inflation, economic activity, and inequality. Our framework gives rise, inter alia, to endogenous persistence in response to transitory shocks. Monetary policy is intimately linked to inequality as the nominal interest rate is a relevant price for holding money for self-insurance reasons.

New Economics Papers: this item is included in nep-dge, nep-mac and nep-mon
Date: 2016
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