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The redistributive effects of monetary policy

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  • Olivier Ledoit

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.

Suggested Citation

  • Olivier Ledoit, 2011. "The redistributive effects of monetary policy," ECON - Working Papers 044, Department of Economics - University of Zurich.
    • Handle: RePEc:zur:econwp:044
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    File URL: https://www.zora.uzh.ch/id/eprint/51548/1/econwp044.pdf
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    References listed on IDEAS

    as
    1. Theodore Palivos, 2005. "Optimal monetary policy with heterogeneous agents: a case for inflation," Oxford Economic Papers, Oxford University Press, vol. 57(1), pages 34-50, January.
    2. Erosa, Andres & Ventura, Gustavo, 2002. "On inflation as a regressive consumption tax," Journal of Monetary Economics, Elsevier, vol. 49(4), pages 761-795, May.
    3. Joydeep Bhattacharya & Joseph H. Haslag & Antoine Martin, 2005. "Heterogeneity, Redistribution, And The Friedman Rule," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(2), pages 437-454, May.
    4. Lucas, Robert E, Jr, 1996. "Nobel Lecture: Monetary Neutrality," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 661-682, August.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Ohad Raveh, 2020. "Monetary Policy, Natural Resources, and Federal Redistribution," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 75(3), pages 585-613, March.
    2. Villarreal, Francisco G., 2014. "Financial Services and Household Inequality in Mexico," MPRA Paper 57075, University Library of Munich, Germany.
    3. Ohad Raveh, 2016. "Monetary Policy, Fisal Federalism, and Capital Intensity," OxCarre Working Papers 181, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
    4. Baeriswyl Romain & Cornand Camille, 2018. "The distortionary effect of monetary policy: credit expansion vs. lump-sum transfers in the lab," The B.E. Journal of Macroeconomics, De Gruyter, vol. 18(2), pages 1-30, June.
    5. Nils M. Gornemann & Keith Kuester & Makoto Nakajima, 2012. "Monetary policy with heterogeneous agents," Working Papers 12-21, Federal Reserve Bank of Philadelphia.
    6. Pierre Monnin, 2014. "Inflation and Income Inequality in Developed Economies," Working Papers 1401, Council on Economic Policies.
    7. Pierre Monnin & Alexander Barkawi, 2015. "Monetary Policy and Sustainability. The Case of Bangladesh," Discussion Notes 1501, Council on Economic Policies.
    8. Hazra, Devika, 2022. "Does monetary policy favor the skilled? − Distributional role of monetary policy," The Quarterly Review of Economics and Finance, Elsevier, vol. 86(C), pages 65-86.
    9. Süssmuth, Bernd & Wieschemeyer, Matthias, 2022. "Taxation and the distributional impact of inflation: The U.S. post-war experience," Economic Modelling, Elsevier, vol. 111(C).
    10. Arkadiusz Sieron, 2017. "Inflation and Income Inequality," Prague Economic Papers, Prague University of Economics and Business, vol. 2017(6), pages 633-645.
    11. repec:prg:jnlpep:v:preprint:id:630:p:1-13 is not listed on IDEAS

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    More about this item

    Keywords

    Money; redistribution; policy; central bank; social network; topology;
    All these keywords.

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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