The redistributive power of business cycle fluctuations

Marcin Bielecki (), Michal Brzoza-Brzezina and Marcin Kolasa ()
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Marcin Bielecki: University of Warsaw
Marcin Kolasa: SGH Warsaw School of Economics

No 2026-2, Working Papers from Faculty of Economic Sciences, University of Warsaw

Abstract: How do business cycles redistribute between generations, what are the redistribution channels and what role is played by monetary policy? We construct a New-Keynesian life-cycle model and estimate it for the United States. Business cycles redistribute significantly: fluctuations impact welfare of some cohorts by an equivalent of 30% of annual consumption. These first-order effects do not net out over a typical life cycle: some cohorts have been much less lucky than others. Life cycle aspects also amplify second-order costs of fluctuations. Monetary policy shocks are highly redistributive and, hence play an over-proportional role in driving redistribution: they are responsible for over 20% of its total amount. Systematic monetary policy has a quantitatively significant impact on redistribution as well: policy that responds strongly to inflation and output can substantially increase intergenerational redistribution.

Keywords: Business Cycles; Welfare Redistribution; Monetary Policy; Life-cycle Model (search for similar items in EconPapers)
JEL-codes: E24 E32 E47 E52 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:war:wpaper:2026-2

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