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Monetary Policy with Heterogeneous Agents

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  • Makoto Nakajima

    (Federal Reserve Bank of Philadelphia)

Abstract

We build a New Keynesian model in which heterogeneous workers differ with regard to their employment status due to search and matching frictions in the labor market, their potential labor income, and their amount of savings. We use this laboratory to quantitatively assess who stands to win or lose from unanticipated monetary accommodation and who benefits most from systematic monetary stabilization policy. We find substantial redistribution effects of monetary policy shocks; a contractionary monetary policy shock increases income and welfare of the wealthiest 5 percent, while the remaining 95 percent experience lower income and welfare. Consequently, the negative effect of a contractionary monetary policy shock to social welfare is larger if heterogeneity is taken into account.

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Paper provided by Society for Economic Dynamics in its series 2013 Meeting Papers with number 356.

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Date of creation: 2013
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Handle: RePEc:red:sed013:356
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Monetary policy with heterogeneous agents
    by Christian Zimmermann in NEP-DGE blog on 2012-10-05 14:46:19
  2. Lecturas Recomendadas de Política Monetaria
    by Alejandro Villagomez in Tintero Económico Diario on 2012-10-07 00:00:00
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Cited by:

  1. Volker Tjaden & Ralph Lütticke & Lien Pham & Christian Bayer, 2013. "Household Income Risk, Nominal Frictions, and Incomplete Markets," 2013 Meeting Papers 1270, Society for Economic Dynamics.
  2. Jae Won Lee, 2014. "Monetary Policy with Heterogeneous Households and Imperfect Risk-Sharing," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(3), pages 505-522, July.

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