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Monetary Policy and Inequality under Household Heterogeneity and Incomplete Markets

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  • Francisco G. Villarreal

    (Economic Commission for Latin America and the Caribbean, United Nations)

Abstract

Motivated by the empirical evidence of the effects of unanticipated nominal interest rate increases on the evolution of household inequality in Mexico, which highlight the importance of insurance mechanisms to deal with idiosyncratic risks, the paper uses a Heterogeneous Agent New Keynesian model to analyze the relationship between monetary policy and household inequality. The model is able to capture the main features that characterise both the business cycle dynamics, as well as the distribution of income and wealth. Results indicate that heterogeneity affects the transmission of monetary policy, and that the design of monetary policy has important distributive effects.

Suggested Citation

  • Francisco G. Villarreal, 2022. "Monetary Policy and Inequality under Household Heterogeneity and Incomplete Markets," Revista Economía, Fondo Editorial - Pontificia Universidad Católica del Perú, vol. 45(90), pages 74-110.
    • Handle: RePEc:pcp:pucrev:y:2022:i:90:p:74-110
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    More about this item

    Keywords

    Heterogeneous agents; Incomplete markets; Mexico;
    All these keywords.

    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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