Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/237334 
Year of Publication: 
2021
Series/Report no.: 
ECONtribute Discussion Paper No. 089
Publisher: 
University of Bonn and University of Cologne, Reinhard Selten Institute (RSI), Bonn and Cologne
Abstract: 
We build a New Keynesian business-cycle model with rich household heterogeneity. In the model, systematic monetary stabilization policy affects the distribution of income, income risks, and the demand for funds and supply of assets: the demand, because matching frictions render idiosyncratic labor-market risk endogenous; the supply, because markups, adjustment costs, and the tax system mean that the average profitability of firms is endogenous. Disagreement about systematic monetary stabilization policy is pronounced. The wealth rich or retired tend to favor inflation targeting. The wealth-poor working class, instead, favors unemployment-centric policy. One- and two-agent alternatives can show unanimous disapproval of inflation-centric policy, instead. We highlight how the political support for inflation-centric policy depends on wage setting, the tax system, and the portfolio that households have.
Subjects: 
Monetary Policy
Unemployment
Search and Matching
Heterogeneous Agents
General Equilibrium
Dual Mandate
JEL: 
E12
E21
E24
E32
E52
J64
Document Type: 
Working Paper

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