Monetary Policy and Redistribution: A Look Under the Hatch with Tank

53 Pages Posted: 4 Dec 2019 Last revised: 7 Sep 2020

See all articles by Lilia Maliar

Lilia Maliar

CUNY The Graduate Center - Department of Economics

Christopher Naubert

City University of New York (CUNY) - CUNY Graduate Center

Date Written: November 2019

Abstract

We provide an under-the-hatch look at the mechanisms at work in two-agent new Keynesian (TANK) models. A distinctive feature of our analysis is novel closed-form solutions for general Taylor-type monetary-policy rules. Our analysis of TANK models informs the quantitative heterogeneous-agent new Keynesian literature about potential mechanisms at play when evaluating the effects of monetary policy and fiscal redistribution between asset-market participants and non-participants. We find that, in conventional times, forward guidance is less effective at stimulating today's economy when asset-market participation is low. Additionally, future monetary-policy shocks may work mostly through direct channels even though contemporaneous shocks work largely through indirect channels. Finally, both consumption and income inequality in the model are fully determined by markups. Introducing capital adjustment costs overturns this result and leads to consumption inequality being more countercyclical than income inequality, as is in the data.

Keywords: forward guidance, New Keynesian Model, redistribution, TANK

JEL Classification: C61, C63, C68, E31, E52

Suggested Citation

Maliar, Lilia and Naubert, Christopher, Monetary Policy and Redistribution: A Look Under the Hatch with Tank (November 2019). CEPR Discussion Paper No. DP14159, Available at SSRN: https://ssrn.com/abstract=3496649

Lilia Maliar (Contact Author)

CUNY The Graduate Center - Department of Economics ( email )

365 Fifth Avenue, 5th Floor
New York, NY 10016
United States

Christopher Naubert

City University of New York (CUNY) - CUNY Graduate Center ( email )

New York, NY
United States

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