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Distributional Effects of Monetary Policies in a New Neoclassical Model with Progressive Income Taxation

  • Burkhard Heer; Alfred Maussner

    ()

    (School of Economics and Management Free University of Bolzano-Bozen)

In our dynamic optimizing sticky price model, agents are heterogenous with regard to their assets and their income. Unanticipated inflation redistributes income and wealth. In order to model the wealth distribution, we study a 60-period OLG model with aggregate uncertainty. A positive technology shock increases the concentration of wealth as measured by the Gini coefficient considerably. In particular, a one percent increase of the technology level results in a one percent increase of the Gini coefficient. An unexpected expansionary monetary policy is found to reduce the inequality of the wealth distribution. In addition, we find that the business cycle dynamics in the OLG model in response to both a technology shock and a monetary shock are different from those in the corresponding representative-agent model

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Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2005 with number 12.

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Date of creation: 11 Nov 2005
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Handle: RePEc:sce:scecf5:12
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