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Quantitative easing with heterogeneous agents

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  • Cui, Wei
  • Sterk, Vincent

Abstract

We study the effects of Quantitative Easing (QE) in a heterogeneous-agents model with liquid and partially liquid wealth, and nominal rigidities. The direct macroeconomic effect of QE is determined by the difference in marginal propensities to consume out of the two types of wealth, which is large according to empirical studies. Therefore, the effects of QE on aggregate output and inflation are significant, according to the model. Indeed, the estimated model reveals that QE interventions greatly dampened the U.S. Great Recession, by expanding household liquidity. However, QE may have strong and adverse distributional effects, compared to interest rate policy.

Suggested Citation

  • Cui, Wei & Sterk, Vincent, 2021. "Quantitative easing with heterogeneous agents," Journal of Monetary Economics, Elsevier, vol. 123(C), pages 68-90.
    • Handle: RePEc:eee:moneco:v:123:y:2021:i:c:p:68-90
    DOI: 10.1016/j.jmoneco.2021.07.007
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    Cited by:

    1. Bonciani, Dario & Oh, Joonseok, 2023. "Revisiting the New Keynesian policy paradoxes under QE," European Economic Review, Elsevier, vol. 154(C).
    2. Kumhof, Michael & Salgado-Moreno, Mauricio, 2024. "Quantitative easing and quantitative tightening: the money channel," Bank of England working papers 1090, Bank of England.
    3. Xu, Xin & Xu, Xiaoguang, 2023. "Monetary policy transmission modeling and policy responses," The North American Journal of Economics and Finance, Elsevier, vol. 64(C).
    4. Sarah Burkinshaw & Yaz Terajima & Carolyn A. Wilkins, 2022. "Income Inequality in Canada," Discussion Papers 2022-16, Bank of Canada.
    5. Temperini, Jacopo & D'Ippoliti, Carlo & Gobbi, Lucio, 2024. "Is the time ripe for helicopter money? Growth impact and financial stability risks of outright monetary transfers," Structural Change and Economic Dynamics, Elsevier, vol. 69(C), pages 24-36.
    6. Cantore, Cristiano & Meichtry, Pascal, 2023. "Unwinding quantitative easing: state dependency and household heterogeneity," Bank of England working papers 1030, Bank of England.
    7. Goto, Eiji, 2023. "Industry effects of unconventional monetary policy, within and across countries," Journal of International Money and Finance, Elsevier, vol. 136(C).
    8. Dusan Stojanovic, 2023. "Quantitative Easing in the Euro Area: Implications for Income and Wealth Inequality," CERGE-EI Working Papers wp760, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    9. Christiaan van der Kwaak, 2024. "Monetary financing does not produce miraculous fiscal multipliers," Discussion Papers 2417, Centre for Macroeconomics (CFM).
    10. Bonciani, Dario & Oh, Joonseok, 2021. "Optimal monetary policy mix at the zero lower bound," Bank of England working papers 945, Bank of England.
    11. Tsiaras, Stylianos, 2023. "Asset purchases, limited asset markets participation and inequality," Journal of Economic Dynamics and Control, Elsevier, vol. 154(C).
    12. Felipe Alves & Christian Bustamante & Xing Guo & Katya Kartashova & Soyoung Lee & Thomas Michael Pugh & Kurt See & Yaz Terajima & Alexander Ueberfeldt, 2022. "Heterogeneity and Monetary Policy: A Thematic Review," Discussion Papers 2022-2, Bank of Canada.
    13. Harrison, Richard, 2024. "Optimal quantitative easing and tightening," Bank of England working papers 1063, Bank of England.

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    More about this item

    Keywords

    Monetary policy; Large-scale asset purchases; Household liquidity;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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