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The redistributive effects of monetary policy

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  • Olivier Ledoit

Abstract

We introduce a model of the economy as a social network. Two agents are linked to the extent that they transact with each other. This generates well-defined topological notions of location, neighborhood and closeness. We investigate the implications of our model for monetary economics. When a central bank increases the money supply, it must inject the money somewhere in the economy. We demonstrate that the agent closest to the location where money is injected is better off, and the one furthest is worse off. This redistribution channel is independent from the ones previously noted in the literature. Symmetrically, any decrease in the money supply redistributes purchasing power in the other direction. We also outline the testable implications of our model.

Suggested Citation

  • Olivier Ledoit, 2011. "The redistributive effects of monetary policy," ECON - Working Papers 044, Department of Economics - University of Zurich.
  • Handle: RePEc:zur:econwp:044
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    File URL: http://www.econ.uzh.ch/static/wp/econwp044.pdf
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    References listed on IDEAS

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    1. Joydeep Bhattacharya & Joseph H. Haslag & Antoine Martin, 2005. "Heterogeneity, Redistribution, And The Friedman Rule," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(2), pages 437-454, May.
    2. Lucas, Robert E, Jr, 1996. "Nobel Lecture: Monetary Neutrality," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 661-682, August.
    3. Theodore Palivos, 2005. "Optimal monetary policy with heterogeneous agents: a case for inflation," Oxford Economic Papers, Oxford University Press, vol. 57(1), pages 34-50, January.
    4. Erosa, Andres & Ventura, Gustavo, 2002. "On inflation as a regressive consumption tax," Journal of Monetary Economics, Elsevier, vol. 49(4), pages 761-795, May.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Romain Baeriswyl & Camille Cornand, 2015. "The distortionary effect of monetary policy : credit expansion vs. lump-sum transfers in the lab," Working Papers 1516, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    2. Pierre Monnin & Alexander Barkawi, 2015. "Monetary Policy and Sustainability. The Case of Bangladesh," Discussion Notes 1501, Council on Economic Policies.
    3. Villarreal, Francisco G., 2014. "Financial Services and Household Inequality in Mexico," MPRA Paper 57075, University Library of Munich, Germany.
    4. repec:prg:jnlpep:v:2017:y:2017:i:6:id:630:p:633-645 is not listed on IDEAS
    5. Nadav Ben Zeev & Ohad Raveh, 2017. "Monetary Policy, Fisal Federalism, and Capital Intensity," OxCarre Working Papers 181, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
    6. repec:prg:jnlpep:v:preprint:id:630:p:1-13 is not listed on IDEAS
    7. Pierre Monnin, 2014. "Inflation and Income Inequality in Developed Economies," Working Papers 1401, Council on Economic Policies.

    More about this item

    Keywords

    Money; redistribution; policy; central bank; social network; topology;

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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