scholarly journals The Redistributive Effects of Monetary Policy Across Generations

2018 ◽  
pp. 44-60 ◽  
Author(s):  
Olga Bondarenko
Keyword(s):  
Monetary Policy ◽  
Overlapping Generations ◽  
Income Group ◽  
New Keynesian ◽  
Labor Income ◽  
Monetary Shocks ◽  
Olg Model ◽  
Debt Accumulation ◽  
Policy Transmission ◽  
Redistributive Effects

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.

Intergenerational Redistributive Effects of Monetary Policy

2021 ◽  
Author(s):  
Marcin Bielecki ◽  
Michał Brzoza-Brzezina ◽  
Marcin Kolasa
Keyword(s):  
Monetary Policy ◽  
Life Cycle ◽  
Household Finance ◽  
Labor Income ◽  
Monetary Shocks ◽  
Financial Assets ◽  
Asset Accumulation ◽  
Cycle Model ◽  
Net Worth ◽  
Redistributive Effects

Abstract This paper investigates the distributional consequences of monetary policy across generations. We use a life-cycle model with a rich asset structure as well as nominal and real rigidities, calibrated to the euro area using both macroeconomic aggregates and microeconomic evidence from the Household Finance and Consumption Survey. We show that the life-cycle profiles of income and asset accumulation decisions are important determinants of redistributive effects of monetary shocks. The redistribution is mainly driven by nominal assets and labor income, less by real financial assets and housing. Overall, we find that a typical monetary policy easing redistributes welfare from older to younger generations, and decreases net worth inequality associated with life-cycle motives.

scholarly journals Monetary Policy and Inequality under Labor Market Frictions and Capital-Skill Complementarity

2021 ◽  
Vol 13 (2) ◽  
pp. 292-332
Author(s):  
Juan J. Dolado ◽  
Gergő Motyovszki ◽  
Evi Pappa
Keyword(s):  
Monetary Policy ◽  
Labor Market ◽  
Income Inequality ◽  
New Keynesian ◽  
Labor Income ◽  
Skilled Workers ◽  
Investment Demand ◽  
Multiplier Effect ◽  
Distributional Consequences ◽  
Amplification Mechanism

We provide a new channel through which monetary policy has distributional consequences at business cycle frequencies. We show that an unexpected monetary easing increases labor income inequality between high-skilled and less-skilled workers. To rationalize these findings, we build a New Keynesian DSGE model with asymmetric search-and-matching (SAM) frictions and capital-skill complementarity (CSC) in production. We show that CSC on its own introduces a dynamic demand amplification mechanism: the increase in high-skilled employment after a monetary expansion makes complementary capital more productive, encouraging a further rise in investment demand and creating a multiplier effect. SAM asymmetries magnify this channel. (JEL E32, E52, E24, E12, E25, J63)

scholarly journals Financial Heterogeneity and the Investment Channel of Monetary Policy

Econometrica ◽  
2020 ◽  
Vol 88 (6) ◽  
pp. 2473-2502
Author(s):  
Pablo Ottonello ◽  
Thomas Winberry
Keyword(s):  
Monetary Policy ◽  
Default Risk ◽  
Firm Heterogeneity ◽  
New Keynesian ◽  
Cost Curve ◽  
Monetary Shocks ◽  
Keynesian Model ◽  
Aggregate Effect ◽  
Heterogeneous Firm ◽  
Effect Of Monetary Policy

We study the role of financial frictions and firm heterogeneity in determining the investment channel of monetary policy. Empirically, we find that firms with low default risk—those with low debt burdens and high “distance to default”— are the most responsive to monetary shocks. We interpret these findings using a heterogeneous firm New Keynesian model with default risk. In our model, low‐risk firms are more responsive to monetary shocks because they face a flatter marginal cost curve for financing investment. The aggregate effect of monetary policy may therefore depend on the distribution of default risk, which varies over time.

scholarly journals Structural Changes in Investment and the Waning Power of Monetary Policy

2021 ◽  
Author(s):  
Justin Bloesch ◽  
Jacob P. Weber
Keyword(s):  
Monetary Policy ◽  
Open Economy ◽  
Structural Changes ◽  
Small Open Economy ◽  
Value Added ◽  
New Keynesian ◽  
Secular Change ◽  
Labor Income ◽  
Labor Earnings ◽  
Investment Goods

We argue that secular change in both the production and composition of investment goods has weakened private investment's role in the transmission of monetary policy to labor earnings and consumption. We show analytically that fluctuations in the production of investment goods amplify the response of consumption to monetary policy shocks by varying labor income for hand-to-mouth agents. We document three secular changes that weaken this channel: (i) labor's share of value added in investment goods production has declined, (ii) the import share of investment goods has risen, and (iii) the composition of investment has shifted towards components that are less responsive to monetary policy. A small open economy, two agent New Keynesian model calibrated to match these facts implies a 38% and 26% weaker response of labor income and aggregate consumption, respectively, to real interest rate shocks in a 2010's economy relative to a 1960's economy.

scholarly journals Monetary policy and news shocks: are Taylor rules forward-looking?

2016 ◽  
Vol 16 (2) ◽  
Author(s):  
Gabriela Best ◽  
Pavel Kapinos
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Taylor Rule ◽  
New Keynesian ◽  
Monetary Shocks ◽  
Taylor Rules ◽  
Macroeconomic Conditions ◽  
Econometric Methods ◽  
Keynesian Model ◽  
Forward Looking

AbstractThis paper extends a standard New Keynesian model by introducing anticipated shocks to inflation, output, and interest rates, and by incorporating forward-looking, forecast-targeting Taylor rules. The latter aspect is parsimoniously modeled through the presence of an expected future interest rate term in the Taylor rule that recent literature has found to be economically and statistically important in a variety of settings without anticipated shocks. Using Bayesian econometric methods, we find that the presence of anticipated shocks improves the model’s fit to the US data but substantially decreases the weight on future macroeconomic variables in the forward-looking Taylor rule. Our results suggest that, although communicating its intentions regarding future monetary policy conduct, as modeled by anticipated monetary shocks, plays an important role for the Fed, responding to its expectations of future macroeconomic conditions does not. Furthermore, we conduct extensive robustness checks with respect to modeling the forward-looking specification of the Taylor rule that confirm our baseline results.

scholarly journals The Significance of Monetary Policy Transmission Mechanism in the Sustainable Development of the SAARC Economic Community

2021 ◽  
Vol 13 (23) ◽  
pp. 13171
Author(s):  
Muhammad Zahid ◽  
Muhammad Ramzan ◽  
Muhammad Zia Ul Haq ◽  
Wonseok Lee ◽  
Jinsoo Hwang ◽  
...  
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Regional Cooperation ◽  
Economic Benefits ◽  
Annual Data ◽  
Monetary Shocks ◽  
Monetary Policy Transmission ◽  
Policy Transmission ◽  
Economic Union ◽  
Credit Channels

The purpose of this study is to examine the monetary policy transmission mechanisms in seven South Asian Association for Regional Cooperation (SAARC) countries to discover the viability of the convergence of the SAARC into a monetary and economic union based on common monetary channels. By employing optimal currency area theory, we used the restricted VAR analysis on the annual data from 1978 to 2017. We find that the money channel response provides proof for the presence of an exchange rate and credit channels. Furthermore, the real sector also responds to changes in fiscal and monetary shocks through the exchange rate and credit channels over short-run to long-run time horizons. This implies that the SAARC is a good candidate due to common exchange rate and credit channels. The function of the variance decomposition and the impulse for forming a monetary and economic union is that they share a coincidental pattern of dynamic reactions of inflation and growth to exogenous shocks. If the SAARC monetary and economic union is created, it will reap overall economic benefits inside and outside of Asia just like the European Union (EU).

Model Uncertainty in Macroeconomics

2019 ◽  
pp. 678-736
Author(s):  
Michael Binder ◽  
Philipp Lieberknecht ◽  
Jorge Quintana ◽  
Volker Wieland
Keyword(s):  
Monetary Policy ◽  
Model Uncertainty ◽  
Financial Frictions ◽  
Model Averaging ◽  
Output Growth ◽  
New Keynesian ◽  
Comparative Approach ◽  
Financial Variables ◽  
Policy Transmission ◽  
New Generation

For many years, structural macroeconomic models used at central banks for policy evaluation have exhibited New Keynesian features such as nominal rigidities and forward-looking decision-making. More recently, new contributions have added more detailed characterizations of the financial sector. This chapter employs a comparative approach to investigate the characteristics of this new generation of macro-financial models and documents increased model uncertainty. Policy transmission is highly heterogeneous across types of financial frictions and monetary policy has larger effects, on average. A simple policy rule optimized to perform well over several models with financial frictions involves a weaker response to inflation and the output gap than in earlier models. Including a response to financial variables such as credit growth does not improve performance very much, yet a response to output growth does. Models with financial frictions produce somewhat better forecasts. Overall, model-averaging yields a more robust framework for designing monetary policy.

Bank Lending and Monetary Policy Transmission in Austria

2010 ◽  
Vol 230 (2) ◽  
Author(s):  
Johann Burgstaller
Keyword(s):  
Growth Rate ◽  
Monetary Policy ◽  
Interest Rates ◽  
Banking Sector ◽  
Bank Lending ◽  
Monetary Shocks ◽  
Lending Channel ◽  
Real Gdp ◽  
Policy Transmission ◽  
Loan Supply

SummaryThis paper examines the role of banks in the propagation process of monetary policy actions. Testable hypotheses are deduced from the theory of the lending channel, which argues that after a policy-induced drain of funds from the banking sector, some (types of) institutions are unable or unwilling to retain their prior levels of lending. To identify the decisive bank attributes, disaggregated data for the full population of Austrian banks is used for the 1998-2005 period. The average Austrian bank is found to significantly reduce its growth rate of loans after an increase in policy-driven interest rates. Heterogeneous lending reactions appear to be more pronounced for the institutions that are organized in multi-tier sectors. At large, the results are not compatible with the widespread notion that the Austrian banking sector absorbs monetary shocks. The lending channel also seems of aggregate importance as impulses in loan supply are found to significantly affect the growth rate of real GDP.

scholarly journals Monetary Policy and Bubbles in a New Keynesian Model with Overlapping Generations

2021 ◽  
Vol 13 (2) ◽  
pp. 121-167
Author(s):  
Jordi Galí
Keyword(s):  
Monetary Policy ◽  
Rational Expectations ◽  
Overlapping Generations ◽  
Asset Price ◽  
New Keynesian ◽  
New Keynesian Model ◽  
Asset Price Bubbles ◽  
Price Bubbles ◽  
Keynesian Model ◽  
Welfare Implications

I analyze an extension of the New Keynesian model that features overlapping generations of finitely lived agents and (stochastic) transitions to inactivity. In contrast with the standard model, the proposed framework allows for the existence of rational expectations equilibria with asset price bubbles. I study the conditions under which bubble-driven fluctuations may emerge and the type of monetary policy rules that may prevent them. I conclude by discussing some of the model’s welfare implications. (JEL E12, E32, E44, E52, E63)

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