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Monetary Policy, Inflation, and Inequality: The Case for Helicopters

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  • Xavier Ragot

    (Paris School of Economics)

  • Florin O. Bilbiie

    (Paris School of Economics)

Abstract

We put together a model where heterogenous households hold money because they particpate infrequently in financial markets, while firms face nominal frictions, as in the New Keynesian literature. We build a tractable framework whereby we characterize analytically the effect of money injections on inflation, economic activity, and inequality. Our framework gives rise, inter alia, to endogenous persistence in response to transitory shocks. Monetary policy is intimately linked to inequality as the nominal interest rate is a relevant price for holding money for self-insurance reasons.

Suggested Citation

  • Xavier Ragot & Florin O. Bilbiie, 2016. "Monetary Policy, Inflation, and Inequality: The Case for Helicopters," 2016 Meeting Papers 1663, Society for Economic Dynamics.
    • Handle: RePEc:red:sed016:1663
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