Monetary policy, agent heterogeneity and inequality: Insights from a three-agent New Keynesian model

Arbeitspapier

In this paper I develop a New Keynesian dynamic stochastic general equilibrium model which features three different types of representative agents (THRANK): the poor hand-to- mouth, the wealthy hand-to-mouth and the non-hand-to mouth households. Compared to a full-scale HANK model, this model is easier to compute while reproducing many of the same monetary policy shock transmission channels. I show that monetary policy transmission takes place through a redistribution channel, as emphasised by Auclert (2019). In particular, the effects of a monetary policy shock are amplified as resources are redistributed from high-MPC households to low-MPC households. Monetary policy therefore becomes more effective compared to models with homogeneous MPC rates. Consumption inequality is countercyclical in this setting and a high degree of leverage amplifies the redistribution channel. These findings have important implications for understanding the effects of both monetary and macroprudential policy.

Object Details

• ISBN: 978-92-899-4813-5
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 2590

Classification and Topics

• Classification: Wirtschaft ; Personal Income, Wealth, and Their Distributions ; General Aggregative Models: Keynes; Keynesian; Post-Keynesian ; Macroeconomics: Consumption; Saving; Wealth ; Interest Rates: Determination, Term Structure, and Effects ; Monetary Policy
• Subject: monetary policy ; household heterogeneity ; inequality ; housing market

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Eskelinen, Maria
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2021

Further information

• DOI: doi:10.2866/283105
• Handle: http://hdl.handle.net/10419/246167
• Last update: 10.03.2025, 11:45 AM CET