The redistributive effects of monetary policy
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.
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- Joydeep Bhattacharya & Joseph H. Haslag & Antoine Martin, 2004.
"Heterogeneity, redistribution, and the Friedman rule,"
Research Working Paper
RWP 04-01, Federal Reserve Bank of Kansas City.
- 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, 05.
- Bhattacharya, Joydeep & Haslag, Joseph & Martin, Antoine, 2004. "Heterogeneity, Redistribution, and the Friedman Rule," Staff General Research Papers Archive 11371, Iowa State University, Department of Economics.
- Lucas, Robert E, Jr, 1996. "Nobel Lecture: Monetary Neutrality," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 661-82, August.
- 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.
- Erosa, Andres & Ventura, Gustavo, 2002.
"On inflation as a regressive consumption tax,"
Journal of Monetary Economics,
Elsevier, vol. 49(4), pages 761-795, May.
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