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Maria Eskelinen

23 September 2021
In this paper I develop a New Keynesian dynamic stochastic general equilibrium model which features three different types of representative agents (THRANK): the poor hand-to-mouth, the wealthy hand-to-mouth and the non-hand-to mouth households. Compared to a full-scale HANK model, this model is easier to compute while reproducing many of the same monetary policy shock transmission channels. I show that monetary policy transmission takes place through a redistribution channel, as emphasised by Auclert (2019). In particular, the effects of a monetary policy shock are amplified as resources are redistributed from high-MPC households to low-MPC households. Monetary policy therefore becomes more effective compared to models with homogeneous MPC rates. Consumption inequality is countercyclical in this setting and a high degree of leverage amplifies the redistribution channel. These findings have important implications for understanding the effects of both monetary and macroprudential policy.
JEL Code
D31 : Microeconomics→Distribution→Personal Income, Wealth, and Their Distributions
E12 : Macroeconomics and Monetary Economics→General Aggregative Models→Keynes, Keynesian, Post-Keynesian
E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth
E43 : Macroeconomics and Monetary Economics→Money and Interest Rates→Interest Rates: Determination, Term Structure, and Effects
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy