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Redistribution and Optimal Monetary Policy: Results and Open Questions

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  • Stefania Albanesi

    () (Columbia University, NBER and CEPR)

Abstract

What are the properties of optimal fiscal and monetary policies with heterogeneous agents? This is a pressing question, given the wealth of evidence on heterogeneity in cash holdings and labor income. Yet, until recently it remained largely unexplored. In this paper, I show that with heterogeneity the Friedman rule is optimal only if positive nominal interest rates do not ameliorate constraints on redistribution. With an empirically plausible cross-sectional correlation between money holdings and labor income, the Friedman rule is optimal if the government favors redistribution to the poor. I discuss these findings and propose several directions for future research.

Suggested Citation

  • Stefania Albanesi, 2007. "Redistribution and Optimal Monetary Policy: Results and Open Questions," Rivista di Politica Economica, SIPI Spa, vol. 97(4), pages 3-48, July-Augu.
  • Handle: RePEc:rpo:ripoec:v:97:y:2007:i:4:p:3-48
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    References listed on IDEAS

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    Cited by:

    1. Firouz Gahvari & Luca Micheletto, 2012. "Monetary Policy and Redistribution: What can or cannot be Neutralized with Mirrleesian Taxes," CESifo Working Paper Series 3711, CESifo Group Munich.
    2. Gahvari, Firouz & Micheletto, Luca, 2016. "Capital income taxation and the Atkinson–Stiglitz theorem," Economics Letters, Elsevier, vol. 147(C), pages 86-89.

    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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