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Monetary And Fiscal Policies In A Heterogeneous-agent Economy

Author

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  • Amy Hongfei Sun

Abstract

I study the effects of long-run inflation and income taxation in an economy where households face uninsurable idiosyncratic risks. I construct a tractable competitive search framework that generates dispersion of prices, income and wealth. I analytically characterize the stationary equilibrium and the policy effects on individual choices. Quantitative analysis finds that monetary and fiscal policies have distinctive effects on macro aggregates, such as output, savings, wealth dispersion, income and consumption inequalities. There can be a hump-shape relationship between welfare and the respective policies. Overall, welfare can be maximized by a deviation from the Friedman rule, paired with distortionary income taxation.

Suggested Citation

  • Amy Hongfei Sun, 2011. "Monetary And Fiscal Policies In A Heterogeneous-agent Economy," Working Paper 1262, Economics Department, Queen's University.
    • Handle: RePEc:qed:wpaper:1262
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    File URL: https://www.econ.queensu.ca/sites/econ.queensu.ca/files/qed_wp_1262.pdf
    File Function: First version 2011
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    Citations

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    Cited by:

    1. Guillaume Rocheteau & Pierre-Olivier Weill & Tsz-Nga Wong, 2015. "Working through the Distribution: Money in the Short and Long Run," NBER Working Papers 21779, National Bureau of Economic Research, Inc.
    2. Rocheteau, Guillaume & Weill, Pierre-Olivier & Wong, Russell, 2018. "A tractable model of monetary exchange with ex-post heterogeneity," Theoretical Economics, Econometric Society, vol. 13(3), September.
    3. Jonathan Chiu & Miguel Molico, 2021. "Short-Run Dynamics in a Search-Theoretic Model of Monetary Exchange," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 42, pages 133-155, October.
    4. Randall Wright & Philipp Kircher & Benoit Julîen & Veronica Guerrieri, 2017. "Directed Search: A Guided Tour," NBER Working Papers 23884, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    competitive search; distributional effect; monetay and fiscal policies; Competitive Search; Policy;
    All these keywords.

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

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