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The long-run redistributive effects of monetary policy

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  • Bustamante, Christian

Abstract

Using a general equilibrium search-theoretic model of money, I study the long-run distributional effects of monetary policy. In my model, heterogeneous agents trade bilaterally in a frictional market and save using cash and illiquid short-term nominal government bonds. Wealth effects generate slow adjustments in agents’ portfolios following their trading activity in decentralized markets, giving rise to a persistent and non-degenerate distribution of assets. The model reproduces the distribution of asset levels and portfolios across households observed in the data. I show that, as wealth inequality increases the incidence of inefficiencies in decentralized trading, policies that improve the ability to self-insure against idiosyncratic shocks are welfare-improving and redistribute resources towards agents that are relatively poor and more liquidity constrained.

Suggested Citation

  • Bustamante, Christian, 2023. "The long-run redistributive effects of monetary policy," Journal of Monetary Economics, Elsevier, vol. 140(C), pages 106-123.
    • Handle: RePEc:eee:moneco:v:140:y:2023:i:c:p:106-123
    DOI: 10.1016/j.jmoneco.2023.08.003
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    Cited by:

    1. Makram El-Shagi, 2024. "The Effect of Monetary Policy Shocks on Inequality in the Eurozone," CFDS Discussion Paper Series 2024/2, Center for Financial Development and Stability at Henan University, Kaifeng, Henan, China.

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    More about this item

    Keywords

    Monetary economics; Search theory; Heterogeneous agents; Public liquidity;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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