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Gini in the Taylor Rule: Should the Fed Care About Inequality?

Author

Listed:
  • Ma Eunseong

    (School of Economics, 26721 Yonsei University , Seoul, South Korea)

  • Park Kwangyong

    (Graduate School of International Studies, Sogang University, Seoul, South Korea)

Abstract

This study investigates whether the Federal Reserve (Fed) should care about inequality. We develop a Heterogeneous Agent New Keynesian (HANK) model, which generates empirically realistic inequalities and business cycle properties observed in the U.S. data. We consider the income Gini coefficient in a monetary policy rule to see how an inequality-targeting monetary policy affects aggregate and disaggregate outcomes, as well as economic welfare. We find that a monetary policy rule with an explicit inequality target can be welfare improving, even if inequality becomes volatile. In particular, the policy reform can improve the welfare of the poorest the most. Finally, we demonstrate the feasibility of a subgroup targeting monetary policy as a tool for an implementable inclusive monetary policy.

Suggested Citation

  • Ma Eunseong & Park Kwangyong, 2025. "Gini in the Taylor Rule: Should the Fed Care About Inequality?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 25(1), pages 241-285.
    • Handle: RePEc:bpj:bejmac:v:25:y:2025:i:1:p:241-285:n:1005
    DOI: 10.1515/bejm-2024-0048
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    More about this item

    Keywords

    monetary policy; inequality; welfare; Taylor rule; nonconvexity;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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