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Monetary policy with heterogeneous agents

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  • Nils Gornemann
  • Keith Kuester
  • Makoto Nakajima

Abstract

We build a New Keynesian model in which heterogeneous workers differ with regard to their employment status due to search and matching frictions in the labor market, their potential labor income, and their amount of savings. We use this laboratory to quantitatively assess who stands to win or lose from unanticipated monetary accommodation and who benefits most from systematic monetary stabilization policy. We find substantial redistribution effects of monetary policy shocks; a contractionary monetary policy shock increases income and welfare of the wealthiest 5 percent, while the remaining 95 percent experience lower income and welfare. Consequently, the negative effect of a contractionary monetary policy shock to social welfare is larger if heterogeneity is taken into account.

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Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 12-21.

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Date of creation: 2012
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Handle: RePEc:fip:fedpwp:12-21

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Keywords: Monetary policy ; Unemployment;

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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Monetary policy with heterogeneous agents
    by Christian Zimmermann in NEP-DGE blog on 2012-10-05 14:46:19
  2. Lecturas Recomendadas de Política Monetaria
    by Alejandro Villagomez in Tintero Económico Diario on 2012-10-07 00:00:00
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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Cited by:
  1. Lütticke, Ralph & Bayer, Christian & Pham, Lien & Tjaden, Volker, 2013. "Household Income Risk, Nominal Frictions, and Incomplete Markets," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order, Verein für Socialpolitik / German Economic Association 79868, Verein für Socialpolitik / German Economic Association.
  2. Jae Won Lee, 2014. "Monetary Policy with Heterogeneous Households and Imperfect Risk-Sharing," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(3), pages 505-522, July.

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