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Monetary policy, heterogeneous population and inflation

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  • Turdaliev, Nurlan

Abstract

Adding heterogeneity to an otherwise simple model results in a deviation from the Friedman rule. We show that a central bank concerned with inequality delivers an outcome below the Pareto frontier. Our results may shed light as to why central banks around the world do not follow the Friedman rule and instead deliver positive inflation rates. On the other hand, the calibrated model indicates that the implied optimal inflation rates are much higher than those observed in the data. One possible interpretation of our results is to question the recent wisdom of thinking of inequality as part of central banks’ concerns.

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  • Turdaliev, Nurlan, 2019. "Monetary policy, heterogeneous population and inflation," Research in Economics, Elsevier, vol. 73(4), pages 277-292.
    • Handle: RePEc:eee:reecon:v:73:y:2019:i:4:p:277-292
    DOI: 10.1016/j.rie.2019.08.002
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    More about this item

    Keywords

    Monetary policy; Heterogeneity; Central bank; Inequality; Inflation; Ramsey policy;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • 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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