Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/297113 
Year of Publication: 
2023
Series/Report no.: 
LEM Working Paper Series No. 2023/05
Publisher: 
Scuola Superiore Sant'Anna, Laboratory of Economics and Management (LEM), Pisa
Abstract: 
We study how income inequality affects monetary policy through the inequality-household debt channel. We design a minimal macro Agent-Based model that replicates several stylized facts, including two novel ones: falling aggregate saving rate and decreasing bankruptcies during the household's debt boom phase. When inequality meets financial liberalization, a leaning against-the-wind strategy can preserve financial stability at the cost of high unemployment, whereas an accommodative strategy, i.e. lowering the policy rate, can dampen the fall of aggregate demand at the cost of larger leverage. We conclude that inequality may constrain the central bank, even when it is not explicitly targeted.
Subjects: 
Inequality
Financial Fragility
Monetary Policy
Agent-Based Model
JEL: 
D31
E21
E25
E31
E52
G51
Document Type: 
Working Paper

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