The paper revises the redistributive channels of monetary policy transmission and their impact on income and wealth distributions in a New-Keynesian Overlapping Generations (OLG) model. The model mimics total asset holdings and earnings processes of several types of households across generations, based on their attitude to saving and income group. In this environment, expansionary monetary shocks stimulate capital and debt accumulation to a larger extent for middle-aged individuals, contributing to intergenerational inequality. Heterogeneity of labor income augments this effect, benefitting richer and more productive workers.
Andrés, J., Bosca, J.E., Ferri, J., Fuentes-Albero, C. (2018). Household's balance sheets and the effect of fiscal policy. Finance and Economics Discussion Series, 2018-012. Washington, D.C.: Federal Reserve Board. https://doi.org/10.17016/feds.2018.012
Auclert, A. (2017). Monetary policy and the redistribution channel. NBER Working Papers, 23451. Retrieved from https://www.nber.org/papers/w23451.pdf https://doi.org/10.3386/w23451
Bernanke, B. S., Gertler, M. (1995). Inside the black box: The credit channel of monetary policy transmission. Journal of Economic Perspectives, 9(4), 27-48. https://doi.org/10.1257/jep.9.4.27
Calvo, G. A. (1983). Staggered prices in a utility-maximizing framework. Journal of Monetary Economics, 12(3), 383-398. https://doi.org/10.1016/0304-3932(83)90060-0
Coibion, O., Gorodnichenko, Y., Kueng, L., Silvia, J. (2017). Innocent bystanders? Monetary policy and inequality. Journal of Monetary Economics, 88(C), 70-89. https://doi.org/10.1016/j.jmoneco.2017.05.005
Constancio, V. (2017). Inequality and macroeconomic policies. Intervention, the Annual Congress of the European Economic Association, Lisbon, August 22, 2017. Retrieved from https://www.ecb.europa.eu/press/key/date/2017/html/ecb.sp170822.en.html
Doepke, M., Schneider, M. (2006). Inflation and the redistribution of nominal wealth. Journal of Political Economy, 114(6), 1069-097. https://doi.org/10.1086/508379
Doris, A., O'Neill, D., Sweetman, O. (2011). GMM estimation of the covariance structure of longitudinal data on earnings. Stata Journal, 11(3), 439-459. https://doi.org/10.1177/1536867x1101100307
Erosa, A., Ventura, G. (2002). On inflation as a regressive consumption tax. Journal of Monetary Economics, 49(4), 761-795. https://doi.org/10.1016/S0304-3932(02)00115-0
Fisher, I. (1933). The debt-deflation theory of great depressions. Econometrica, 1(4), 337-357. https://doi.org/10.2307/1907327
Fleming, J. M. (1962). Domestic financial policies under fixed and under floating exchange rates. IMF Staff Papers, 9(3), 369-380. https://doi.org/10.2307/3866091
Friedman, M., Kuznets, S. (1954). Income from independent professional practice. National Bureau of Economic Research.
Galí, J., López-Salido, J. D, Vallés, J. (2007). Understanding the effects of government spending on consumption. Journal of the European Economic Association, 5(1), 227-270. https://doi.org/10.1162/JEEA.2007.5.1.227
Gornemann, N., Kuester, K, Nakajima, M. (2012). Monetary policy with heterogeneous agents. Working Papers, 12-21. Federal Reserve Bank of Philadelphia. https://doi.org/10.21799/frbp.wp.2012.21
Haldane, A. (2018). How monetary policy affects your GDP. Finch Lecture, University of Melbourne, April 10, 2018. Retrieved from https://www.bankofengland.co.uk/-/media/boe/files/speech/2018/how-monetary-policy-affects-your-gdp-speech-by-andy-haldane.pdf
Heathcote, J., Perri, F., Violante, G. L. (2010). Unequal we stand: An empirical analysis of economic inequality in the United States: 1967-2006. Review of Economic Dynamics, 13(1), 15-51. https://doi.org/10.1016/j.red.2009.10.010
Heer, B., Maußner, A. (2012). The burden of unanticipated inflation: Analysis of an overlapping-generations model with progressive income taxation and staggered prices. Macroeconomic Dynamics, 16(2), 278-308. https://doi.org/10.1017/S1365100510000490
Iacoviello, M. (2005). House prices, borrowing constraints, and monetary policy in the business cycle. American Economic Review, 95(3), 739-764. https://doi.org/10.1257/0002828054201477
Jorgenson, D. (1963). Capital Theory and Investment Behavior. American Economic Review, 53(2), 247-259.
Kaplan, G., Moll, B., Violante, G. L. (2018). Monetary policy according to HANK. American Economic Review, 108(3), 697-743. https://doi.org/10.1257/aer.20160042
Ledoit, O. (2011). The redistributive effects of monetary policy. ECON – Working Papers 044. University of Zurich. Retrieved from http://www.econ.uzh.ch/static/wp/econwp044.pdf
Luetticke, R. (2017). Transmission of monetary policy with heterogeneity in household portfolios. Working paper, 2018-19. University College London. Retrieved from http://www.centreformacroeconomics.ac.uk/Discussion-Papers/2018/CFMDP2018-19-Paper.pdf
Modigliani, F., Miller, M. H. (1958). The cost of capital, corporation finance and the theory of investment. American Economic Review, 48(3), 261-97.
Mundell, R. (1963). Capital mobility and stabilization policy under fixed and flexible exchange rates. The Canadian Journal of Economics and Political Science, 29(4), 475-85. https://doi.org/10.2307/139336
Ohlsson, H. (2017). The distributional effects of monetary policy. Speech, Swedish Trade Union Confederation, Stockholm, April 7, 2017. Retrieved from https://www.riksbank.se/globalassets/media/tal/engelska/ohlsson/2017/tal_ohlsson_170407_eng.pdf
Tenreyro, S., Thwaites, G. (2016). Pushing on a string: US monetary policy is less powerful in recessions. American Economic Journal: Macroeconomics, 8(4), 43-74. https://doi.org/10.1257/mac.20150016
Tobin, J. (1969). A general equilibrium approach to monetary theory. Journal of Money, Credit and Banking, 1(1), 15-29. https://doi.org/10.2307/1991374
United States Office of Personnel Management (2017). Retirement age & trend analysis of the executive branch. Retrieved from https://www.opm.gov/policy-data-oversight/data-analysis-documentation/federal-employment-reports/reports-publications/retirement-age-trend-analysis.pdf
Williamson, S. D. (2008). Monetary policy and distribution. Journal of Monetary Economics, 55(6), 1038-1053. https://doi.org/10.1016/j.jmoneco.2008.07.001
