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Monetary Policy and the Persistent Aggregate Effects of Wealth Redistribution

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  • Martin Kuncl
  • Alexander Ueberfeldt

Abstract

We identify a sizable wealth redistribution channel which creates a monetary policy trade-off whereby short-term economic stimulus is followed by persistently lower output over the medium term. This trade-off is stronger in economies with more nominal household debt but weakened by a more aggressive monetary policy stance and underprice-level targeting. Given this trade-off, low-for-long episodes can lead to persistently depressed output. The medium-term implications of the wealth redistribution channel rely on the presence of labor supply heterogeneity, which we show both analytically and in the context of an estimated New Keynesian general equilibrium model with household heterogeneity.

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  • Martin Kuncl & Alexander Ueberfeldt, 2021. "Monetary Policy and the Persistent Aggregate Effects of Wealth Redistribution," Staff Working Papers 21-38, Bank of Canada.
  • Handle: RePEc:bca:bocawp:21-38
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    1. Monetary Policy and the Persistent Aggregate Effects of Wealth Redistribution
      by Christian Zimmermann in NEP-DGE blog on 2021-09-03 17:39:16

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    2. Donald Coletti, 2023. "A Blueprint for the Fourth Generation of Bank of Canada Projection and Policy Analysis Models," Discussion Papers 2023-23, Bank of Canada.

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    More about this item

    Keywords

    Monetary policy framework; Monetary policy transmission;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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