Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/246167 
Year of Publication: 
2021
Series/Report no.: 
ECB Working Paper No. 2590
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
In this paper I develop a New Keynesian dynamic stochastic general equilibrium model which features three different types of representative agents (THRANK): the poor hand-to- mouth, the wealthy hand-to-mouth and the non-hand-to mouth households. Compared to a full-scale HANK model, this model is easier to compute while reproducing many of the same monetary policy shock transmission channels. I show that monetary policy transmission takes place through a redistribution channel, as emphasised by Auclert (2019). In particular, the effects of a monetary policy shock are amplified as resources are redistributed from high-MPC households to low-MPC households. Monetary policy therefore becomes more effective compared to models with homogeneous MPC rates. Consumption inequality is countercyclical in this setting and a high degree of leverage amplifies the redistribution channel. These findings have important implications for understanding the effects of both monetary and macroprudential policy.
Subjects: 
monetary policy
household heterogeneity
inequality
housing market
JEL: 
D31
E12
E21
E43
E52
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-4813-5
Document Type: 
Working Paper

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