The redistributive effects of monetary policy

Olivier Ledoit

No 44, ECON - Working Papers from Department of Economics - University of Zurich

Abstract: We introduce a model of the economy as a social network. Two agents are linked to the extent that they transact with each other. This generates well-defined topological notions of location, neighborhood and closeness. We investigate the implications of our model for monetary economics. When a central bank increases the money supply, it must inject the money somewhere in the economy. We demonstrate that the agent closest to the location where money is injected is better off, and the one furthest is worse off. This redistribution channel is independent from the ones previously noted in the literature. Symmetrically, any decrease in the money supply redistributes purchasing power in the other direction. We also outline the testable implications of our model.

Keywords: Money; redistribution; policy; central bank; social network; topology (search for similar items in EconPapers)
JEL-codes: E40 E50 (search for similar items in EconPapers)
Date: 2011-10
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:zur:econwp:044

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