IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

The Inequality Channel of Monetary Transmission

  • Marta Areosa
  • Waldyr Areosa

We study optimal monetary policy when inequality is present by introducing agents with different productivities, wages, and financial market accesses into a general equilibrium model with sticky prices. Our main results are: (i) There is a channel from interest rate to inflation throughout inequality; (ii) The welfare-based objective of monetary policy includes inequality stabilization; (iii) Higher levels of financial exclusion are associated to bigger welfare losses and to smaller interest rate variability, providing an alternative explanation to why observed interest rate paths are much less volatile than optimal policies implied by most theoretical models of the monetary transmission mechanism.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.bcb.gov.br/pec/wps/ingl/wps114.pdf
Download Restriction: no

Paper provided by Central Bank of Brazil, Research Department in its series Working Papers Series with number 114.

as
in new window

Length:
Date of creation: Aug 2006
Date of revision:
Handle: RePEc:bcb:wpaper:114
Contact details of provider: Web page: http://www.bcb.gov.br/?english

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Gisle James Natvik, 2012. "Government Spending Shocks and Rule-of-Thumb Consumers with Steady-State Inequality," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(4), pages 1414-1436, December.
  2. Smets, Frank & Wouters, Raf, 2007. "Shocks and frictions in US business cycles: a Bayesian DSGE approach," Working Paper Series 0722, European Central Bank.
  3. Fernando Alvarez & Robert E. Lucas & Warren E. Weber, 2001. "Interest Rates and Inflation," American Economic Review, American Economic Association, vol. 91(2), pages 219-225, May.
  4. Giorgio Motta & Patrizio Tirelli, 2013. "Limited Asset Market Participation, Income Inequality and Macroeconomic Volatility," Working Papers 261, University of Milano-Bicocca, Department of Economics, revised Dec 2013.
  5. Alan Cosme Rodrigues da Silva & João Maurício de Souza Moreira & Myriam Beatriz Eiras das Neves, 2006. "Avaliação de Modelos de Exigência de Capital para Risco de Mercado do Cupom Cambial," Working Papers Series 111, Central Bank of Brazil, Research Department.
  6. Annette Vissing-Jorgensen, 2002. "Limited Asset Market Participation and the Elasticity of Intertemporal Substitution," NBER Working Papers 8896, National Bureau of Economic Research, Inc.
  7. Stefania Albanesi, . "Inflation and Inequality," Working Papers 199, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  8. Arnildo da Silva Correa & Ronald Otto Hillbrecht, 2003. "Ciclos Internacionais de Negócios: uma Análise de Mudança de Regime Markoviano para Brasil, Argentina e Estados Unidos," Anais do XXXI Encontro Nacional de Economia [Proceedings of the 31th Brazilian Economics Meeting] b47, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  9. Araújo, Aloísio Pessoa de & Leon, Márcia Saraiva, 2002. "Speculative attacks on debts, dollarization and optimum currency areas," Economics Working Papers (Ensaios Economicos da EPGE) 446, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  10. John Y. Campbell & N. Gregory Mankiw, 1989. "Consumption, Income and Interest Rates: Reinterpreting the Time Series Evidence," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 185-246 National Bureau of Economic Research, Inc.
  11. Michael Kumhof & Romain Rancière & Pablo Winant, 2015. "Inequality, Leverage, and Crises," Post-Print halshs-01207208, HAL.
  12. V. Anton Muscatelli & Patrizio Tirelli & Carmine Trecroci, 2004. " Fiscal and Monetary Policy Interactions in a New Keynesian Model with Liquidity Constraints," CDMA Conference Paper Series 0402, Centre for Dynamic Macroeconomic Analysis.
  13. Tomas Havranek & Roman Horvath & Zuzana Irsova & Marek Rusnak, 2013. "Cross-Country Heterogeneity in Intertemporal Substitution," Working Papers IES 2013/11, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Aug 2013.
  14. Easterly, William & Fischer, Stanley, 2001. "Inflation and the Poor," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(2), pages 160-78, May.
  15. Olivier Coibion & Yuriy Gorodnichenko & Lorenz Kueng & John Silvia, 2012. "Innocent Bystanders? Monetary Policy and Inequality in the U.S," NBER Working Papers 18170, National Bureau of Economic Research, Inc.
  16. André Soares Loureiro & Fernando de Holanda Barbosa, 2004. "Risk Premia for Emerging Markets Bonds: Evidence from Brazilian Government Debt, 1996-2002," Working Papers Series 85, Central Bank of Brazil, Research Department.
  17. Markus K. Brunnermeier & Yuliy Sannikov, 2012. "Redistributive monetary policy," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 331-384.
  18. Márcio I. Nakane & Leonardo S. Alencar & Fabio Kanczuk, 2006. "Demand for Bank Services and Market Power in Brazilian Banking," Working Papers Series 107, Central Bank of Brazil, Research Department.
  19. Fernando Alvarez & Andrew Atkeson & Patrick J. Kehoe, 2000. "Money, interest rates, and exchange rates with endogenously segmented markets," Staff Report 278, Federal Reserve Bank of Minneapolis.
  20. Thomas Y. Wu, 2004. "Does Inflation Targeting Reduce Inflation? An Analysis for the OECD Industrial Countries," Working Papers Series 83, Central Bank of Brazil, Research Department.
  21. Ana M. Aizcorbe & Arthur B. Kennickell & Kevin B. Moore, 2003. "Recent changes in U.S. family finances: evidence from the 1998 and 2001 Survey of Consumer Finances," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jan, pages 1-32.
  22. Jim Dolmas & Gregory W. Huffman & Mark A. Wynne, 2000. "Inequality, inflation, and central bank independence," Canadian Journal of Economics, Canadian Economics Association, vol. 33(1), pages 271-287, February.
  23. Bordo, Michael D. & Meissner, Christopher M., 2012. "Does inequality lead to a financial crisis?," Journal of International Money and Finance, Elsevier, vol. 31(8), pages 2147-2161.
  24. Ascari, Guido & Colciago, Andrea & Rossi, Lorenza, 2011. "Limited asset market participation : does it really matter for monetary policy?," Research Discussion Papers 15/2011, Bank of Finland.
  25. Matthias Doepke & Martin Schneider, 2006. "Inflation and the Redistribution of Nominal Wealth," Journal of Political Economy, University of Chicago Press, vol. 114(6), pages 1069-1097, December.
  26. Marvin Goodfriend & Robert King, 1997. "The New Neoclassical Synthesis and the Role of Monetary Policy," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 231-296 National Bureau of Economic Research, Inc.
  27. Mauricio S. Bugarin & Fabia A. de Carvalho, 2005. "Comment on ‘Market discipline and monetary policy’ by Carl Walsh," Oxford Economic Papers, Oxford University Press, vol. 57(4), pages 732-739, October.
  28. Stephen D. Williamson, 2005. "Monetary Policy and Distribution," 2005 Meeting Papers 379, Society for Economic Dynamics.
  29. Richard Clarida & Jordi Gali & Mark Gertler, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," NBER Working Papers 7147, National Bureau of Economic Research, Inc.
  30. Annette Vissing-Jorgensen, 2002. "Limited Asset Market Participation and the Elasticity of Intertemporal Substitution," Journal of Political Economy, University of Chicago Press, vol. 110(4), pages 825-853, August.
  31. Leonardo Soriano de Alencar & Márcio I. Nakane, 2003. "Real Balances in the Utility Function: Evidence for Brazil," Working Papers Series 68, Central Bank of Brazil, Research Department.
  32. George W. Evans & Seppo Honkapohja, 2002. "Monetary Policy, Expectations and Commitment," University of Oregon Economics Department Working Papers 2002-11, University of Oregon Economics Department, revised 01 Feb 2004.
  33. Christina D. Romer & David Romer, 1998. "Monetary policy and the well-being of the poor," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 159-201.
  34. Eduardo A. S. Rodrigues & Victorio Chu & Leonardo S. Alencar & Tony Takeda, 2006. "O Efeito da Consignação em Folha nas Taxas de Juros dos Empréstimos Pessoais," Working Papers Series 108, Central Bank of Brazil, Research Department.
  35. Orazio P. Attanasio & Luigi Guiso & Tullio Jappelli, 2002. "The Demand for Money, Financial Innovation, and the Welfare Cost of Inflation: An Analysis with Household Data," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 317-351, April.
  36. Ricardo Schechtman & Valéria Salomão Garcia & Sergio Mikio Koyama & Guilherme Cronemberger Parente, 2004. "Credit Risk Measurement and the Regulation of Bank Capital and Provision Requirements in Brazil - A Corporate Analysis," Working Papers Series 91, Central Bank of Brazil, Research Department.
  37. Champagne, Julien & Kurmann, André, 2013. "The great increase in relative wage volatility in the United States," Journal of Monetary Economics, Elsevier, vol. 60(2), pages 166-183.
  38. Araújo, Aloísio Pessoa de & Leon, Márcia Saraiva, 2003. "Speculative attacks on debts and optimum currency area: a welfare analysis," Economics Working Papers (Ensaios Economicos da EPGE) 514, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  39. Ravenna, Federico & Walsh, Carl E., 2006. "Optimal monetary policy with the cost channel," Journal of Monetary Economics, Elsevier, vol. 53(2), pages 199-216, March.
  40. Ryan A. Compton & Jose Ricardo da Costa e Silva, 2005. "Finance and the Business Cycle: a Kalman Filter Approach with Markov Switching," Working Papers Series 97, Central Bank of Brazil, Research Department.
  41. Filippo Occhino, 2004. "Modeling the Response of Money and Interest Rates to Monetary Policy Shocks: A Segmented Markets Approach," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(1), pages 181-197, January.
  42. Eduardo Lundberg, 2000. "Monetary Policy and Banking Supervision Functions on the Central Bank," Working Papers Series 2, Central Bank of Brazil, Research Department.
  43. repec:fth:harver:1435 is not listed on IDEAS
  44. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  45. Emanuel-Werner Kohlscheen, 2000. "Estimating Exchange Market Pressure and Intervention Activity," Working Papers Series 9, Central Bank of Brazil, Research Department.
  46. Alexandre A. Tombini & Sergio A. Lago Alves, 2006. "The Recent Brazilian Disinflation Process and Costs," Working Papers Series 109, Central Bank of Brazil, Research Department.
  47. Souza, Sergio R.S. & Tabak, Benjamin M. & Cajueiro, Daniel O., 2006. "Investigação da Memória de Longo Prazo na Taxa de Câmbio no Brasil," Revista Brasileira de Economia, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil), vol. 60(2), August.
  48. Pourpourides, Panayiotis M., 2011. "Implicit contracts and the cyclicality of the skill-premium," Journal of Economic Dynamics and Control, Elsevier, vol. 35(6), pages 963-979, June.
  49. Marcelo Kfoury Muinhos & Sergio Afonso Lago Alves, 2003. "Medium-Size Macroeconomic Model for the Brazilian Economy," Working Papers Series 64, Central Bank of Brazil, Research Department.
  50. Dirk Krueger & Fabrizio Perri, 2006. "Does Income Inequality Lead to Consumption Inequality? Evidence and Theory -super-1," Review of Economic Studies, Oxford University Press, vol. 73(1), pages 163-193.
  51. Getúlio Borges da Silveira & Octavio Bessada, 2003. "Análise de componentes principais de dados funcionais - uma aplicação às estruturas a termo de taxas de juros," Working Papers Series 73, Central Bank of Brazil, Research Department.
  52. Arnildo da Silva Correa, 2003. "Diferenças e Semelhanças entre Países da América Latina: Uma Análise de Markov Switching para os Ciclos Econômicos de Brasil e Argentina," Working Papers Series 80, Central Bank of Brazil, Research Department.
  53. Fajardo, J. & Farias, A., 2003. "Generalized Hyperbolic Distributions and Brazilian Data," Finance Lab Working Papers flwp_57, Finance Lab, Insper Instituto de Ensino e Pesquisa.
  54. Bilbiie, Florin O., 2008. "Limited asset markets participation, monetary policy and (inverted) aggregate demand logic," Journal of Economic Theory, Elsevier, vol. 140(1), pages 162-196, May.
  55. Nakajima, Makoto, 2015. "The redistributive consequences of monetary policy," Business Review, Federal Reserve Bank of Philadelphia, issue Q2, pages 9-16.
  56. Demirguc-Kunt,Asli & Klapper,Leora & Singer,Dorothe & Van Oudheusden,Peter, 2015. "The Global Findex Database 2014 : measuring financial inclusion around the world," Policy Research Working Paper Series 7255, The World Bank.
  57. Sergio A. L. Alves & Waldyr D. Areosa, 2005. "Targets and Inflation Dynamics," Working Papers Series 100, Central Bank of Brazil, Research Department.
  58. Ayako Saiki & Jon Frost, 2014. "How does unconventional monetary policy affect inequality? Evidence from Japan," DNB Working Papers 423, Netherlands Central Bank, Research Department.
  59. Benjamin Miranda Tabak & Solange Maria Guerra, 2002. "Stock Returns and Volatility," Working Papers Series 54, Central Bank of Brazil, Research Department.
  60. Eui Jung Chang & Marcelo Kfoury Muinhos & Joanílio Rodolpho Teixeira, 2002. "Macroeconomic Coordination and Inflation Targeting in a Two-Country Model," Working Papers Series 50, Central Bank of Brazil, Research Department.
  61. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  62. Veronika Selezneva & Martin Schneider & Matthias Doepke, 2015. "Distributional Effects of Monetary Policy," 2015 Meeting Papers 1099, Society for Economic Dynamics.
  63. Pedro H. Albuquerque, 2000. "An Information Theory Approach to the Aggregation of Log-Linear Models," Working Papers Series 4, Central Bank of Brazil, Research Department.
  64. Xinhua Gu & Bihong Huang, 2014. "Does Inequality Lead to a Financial Crisis? Revisited," Review of Development Economics, Wiley Blackwell, vol. 18(3), pages 502-516, 08.
  65. John Landon-Lane & Filippo Occhino, 2005. "Estimation and Evaluation of a Segmented Markets Monetary Model," Departmental Working Papers 200505, Rutgers University, Department of Economics.
  66. Marcelle Chauvet, 2000. "Leading Indicators of Inflation for Brazil," Working Papers Series 7, Central Bank of Brazil, Research Department.
  67. Francisco Marcos R. Figueiredo & Thaís Porto Ferreira, 2002. "Os Preços Administrados e a Inflação no Brasil," Working Papers Series 59, Central Bank of Brazil, Research Department.
  68. Al-Marhubi, Fahim, 1997. "A note on the link between income inequality and inflation," Economics Letters, Elsevier, vol. 55(3), pages 317-319, September.
  69. Adrien Auclert, 2015. "Monetary Policy and the Redistribution Channel," 2015 Meeting Papers 381, Society for Economic Dynamics.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:bcb:wpaper:114. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Francisco Marcos Rodrigues Figueiredo)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.