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Income Inequality, Monetary Policy, and the Business Cycle

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  • Stuart J. Fowler

Abstract

The effects of changes in monetary policy are studied in a general equilibrium model where money facilitates transactions. Because there are two types of agents, workers and capitalists, different elasticities of money demand exist, implying that monetary policy influences the distribution of income. When earnings inequality is incorporated into monetary policy rule is the model able to replicate cyclical fluctuations of both real and nominal aggregates as well as the inequality measure. Additionally, monetary policy becomes more countercyclical when the fraction of transfers received by the workers increases.

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File URL: http://capone.mtsu.edu/berc/working/fiscalshock1.pdf
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Bibliographic Info

Paper provided by Middle Tennessee State University, Department of Economics and Finance in its series Working Papers with number 200507.

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Date of creation: Aug 2005
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Handle: RePEc:mts:wpaper:200507

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Web page: http://www.mtsu.edu/~berc/working/Economics_Working_Papers.html
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Keywords: Inflation; Income Distribution; Heterogenous Agents; Perturbation;

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Cited by:
  1. Grigoryan, Aleksandr, 2011. "Interaction between monetary policy and income inequality in a deposits market," MPRA Paper 43555, University Library of Munich, Germany, revised 2012.

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