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Optimal Fiscal-Monetary Policy with Redistribution

Author

Listed:
  • Thomas Sargent

    (New York University)

  • Mikhail Golosov

    (Princeton University)

  • David Evans

    (University of Oregon)

  • anmol bhandari

    (university of minnesota)

Abstract

We study business cycles in a heterogeneous agent model with incomplete markets and sticky nominal prices (a modified HANK model (Kaplan et al. (2016))). Optimal fiscal-monetary policy balances gains from “fiscal hedging” against benefits flowing from a countervailing new motive – “redistributional hedging”. A fictitious planner uses inflation to offset adverse shocks to the cross-section distribution of labor earnings. A calibration that imitates how US recessions reshape that cross-section distribution (as documented by Guve- nen et al. (2014)) indicates that substantial welfare benefits come from moving inflation in response to aggregate shocks.

Suggested Citation

  • Thomas Sargent & Mikhail Golosov & David Evans & anmol bhandari, 2017. "Optimal Fiscal-Monetary Policy with Redistribution," 2017 Meeting Papers 1245, Society for Economic Dynamics.
    • Handle: RePEc:red:sed017:1245
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    References listed on IDEAS

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    Cited by:

    1. Ivens, Annika, 2018. "Optimal fiscal policy under private debt deleveraging," Journal of Economic Dynamics and Control, Elsevier, vol. 97(C), pages 1-18.
    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. José Alves, 2021. "The Sinful Side of Taxation: Is it Possible to Satisfy the Government Hunger for Revenues While Promoting Economic Growth?," Hacienda Pública Española / Review of Public Economics, IEF, vol. 237(2), pages 85-109, June.
    4. 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.
    5. Anmol Bhandari & David Evans & Mikhail Golosov & Thomas Sargent, 2019. "The Optimal Maturity of Government Debt," 2019 Meeting Papers 1011, Society for Economic Dynamics.
    6. Nils Mattis Gornemann, 2018. "HANK meets Ramsey: Optimal Coordination of Monetary and Labor Market Policies," 2018 Meeting Papers 1252, Society for Economic Dynamics.
    7. Bilbiie, Florin Ovidiu, 2017. "The New Keynesian Cross: Understanding Monetary Policy with Hand-to-Mouth Households," CEPR Discussion Papers 11989, C.E.P.R. Discussion Papers.

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