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Monetary Policy with Racial Inequality

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  • Makoto Nakajima

Abstract

I develop a heterogeneous-agent New-Keynesian model featuring racial inequality in income and wealth, and studies interactions between racial inequality and monetary policy. Black and Hispanic workers gain more from accommodative monetary policy than White workers mainly due to higher labor market risks. Their gains are larger also because of a larger proportion of them are hand-to-mouth, while wealthy White workers gain more from asset price appreciation. Monetary and fiscal policies are substitutes in providing insurance against cyclical labor market risks. Racial minorities gain even more from an accommodative monetary policy in the absence of income-dependent fiscal transfers.

Suggested Citation

  • Makoto Nakajima, 2023. "Monetary Policy with Racial Inequality," Opportunity and Inclusive Growth Institute Working Papers 070, Federal Reserve Bank of Minneapolis.
    • Handle: RePEc:fip:fedmoi:96021
    DOI: 10.21034/iwp.70
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    References listed on IDEAS

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    Cited by:

    1. Victoria Gregory & Julian Kozlowski & Hannah Rubinton, 2022. "The Impact of Racial Segregation on College Attainment in Spatial Equilibrium," Working Papers 2022-036, Federal Reserve Bank of St. Louis, revised 24 Jul 2023.
    2. Amanda M. Michaud, 2023. "Expanding Unemployment Insurance Coverage," Opportunity and Inclusive Growth Institute Working Papers 067, Federal Reserve Bank of Minneapolis.

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    More about this item

    Keywords

    Business cycle; Marginal Propensity to Consume; Monetary policy; Labor market; Heterogeneous agents; Hand-to-mouth; Unemployment; Wealth distribution; Racial inequality;
    All these keywords.

    JEL classification:

    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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