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Redistribution and Optimal Monetary Policy: Results and Open Questions

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Author Info
Stefania Albanesi () (Columbia University, NBER and CEPR)

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Abstract

What are the properties of optimal fiscal and monetary policies with heterogeneous agents? This is a pressing question, given the wealth of evidence on heterogeneity in cash holdings and labor income. Yet, until recently it remained largely unexplored. In this paper, I show that with heterogeneity the Friedman rule is optimal only if positive nominal interest rates do not ameliorate constraints on redistribution. With an empirically plausible cross-sectional correlation between money holdings and labor income, the Friedman rule is optimal if the government favors redistribution to the poor. I discuss these findings and propose several directions for future research.

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File URL: http://www.rivistapoliticaeconomica.it/2007/lug-ago/albanesi.pdf
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Article provided by SIPI Spa in its journal Rivista di Politica Economica.

Volume (Year): 97 (2007)
Issue (Month): 4 (July-August)
Pages: 3-48
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Handle: RePEc:rpo:ripoec:v:97:y:2007:i:4:p:3-48

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Find related papers by JEL classification:
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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