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Secular Stagnation and Inequality


  • Gauti Eggertsson

    (Brown University)

  • Neil Mehrotra

    (Brown University)


This paper analyzes the effect of increasing income inequality on real interest rates and the transmission of monetary policy to demand. Using a quantitative overlapping generations model, we investigate how skill-biased technical change and rising monopoly power in the US since 1980 can account for increases in income inequality, a decline in the labor share, and a decline in the investment to output ratio. We find that rising income inequality due to skill-biased technical change has a sizable effect on the real interest rate and attenuates the effectiveness of monetary policy by reducing the demand effect of a fall in the real interest rate.

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  • Gauti Eggertsson & Neil Mehrotra, 2017. "Secular Stagnation and Inequality," 2017 Meeting Papers 1567, Society for Economic Dynamics.
  • Handle: RePEc:red:sed017:1567

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