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The Supply-Side Effects of Household Heterogeneity

Author

Listed:
  • Benjamin Schwanebeck

    (Fern Universität in Hagen)

  • Luzie Thiel

    (University of Kassel)

Abstract

Household heterogeneity has been shown to be an important driver of aggregate demand. In this research, we demonstrate that it also impacts the supply side. We build a model in which heterogeneous households vary in their extent to which they supply production factors (labor and capital). Our model offers novel results about the consequences of inequality for the supply side, showing that (i) inequality distorts the factor allocation leading to higher marginal costs, and (ii) inequality becomes part of the Phillips curve. This is the “misallocation channel of inequality†. The cyclicality of inequality crucially depends on how important capital is for production. Our findings have important implications for building models with household heterogeneity and for optimal monetary policy.

Suggested Citation

  • Benjamin Schwanebeck & Luzie Thiel, 2025. "The Supply-Side Effects of Household Heterogeneity," MAGKS Papers on Economics 202503, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    • Handle: RePEc:mar:magkse:202503
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    File URL: https://www.uni-marburg.de/en/fb02/research-groups/economics/macroeconomics/research/magks-joint-discussion-papers-in-economics/papers/2025-papers/03-2025-schwanebeck-thiel.pdf
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    References listed on IDEAS

    as
    1. Beatriz González & Galo Nuño & Dominik Thaler & Silvia Albrizio, 2021. "Firm Heterogeneity, Capital Misallocation and Optimal Monetary Policy," CESifo Working Paper Series 9465, CESifo.
    2. Florin Bilbiie & Xavier Ragot, 2021. "Optimal Monetary Policy and Liquidity with Heterogeneous Households," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 41, pages 71-95, July.
    3. Benjamin Moll, 2014. "Productivity Losses from Financial Frictions: Can Self-Financing Undo Capital Misallocation?," American Economic Review, American Economic Association, vol. 104(10), pages 3186-3221, October.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Household Heterogeneity; Inequality; Supply-Side Effects; Optimal Monetary Policy; Factor Misallocation.;
    All these keywords.

    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
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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