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Income Inequality, Monetary Policy, and the Business Cycle

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  • Stuart J. Fowler

Abstract

The effects of changes in monetary policy are studied in a general equilibrium model where money facilitates transactions. Because there are two types of agents, workers and capitalists, different elasticities of money demand exist, implying that monetary policy influences the distribution of income. Only when earnings inequality is incorporated into monetary policy rule is the model able to replicate cyclical fluctuations of both real and nominal aggregates as well as the inequality measure. Additionally, monetary policy becomes more countercyclical when the fraction of transfers received by the workers increases. These results can support a theory that the distribution of seigniorage revenues between the workers and capitalists changed in 1979

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  • Stuart J. Fowler, 2005. "Income Inequality, Monetary Policy, and the Business Cycle," Computing in Economics and Finance 2005 184, Society for Computational Economics.
    • Handle: RePEc:sce:scecf5:184
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    Cited by:

    1. Grigoryan, Aleksandr, 2011. "Interaction between monetary policy and income inequality in a deposits market," MPRA Paper 43555, University Library of Munich, Germany, revised 2012.

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    More about this item

    Keywords

    Inflation; Income Distribution; Heterogenous Agents; Perturbation;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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