Working Paper: CEPR ID: DP14118
Authors: Florin Ovidiu Bilbiie; Diego Knzig; Paolo Surico
Abstract: A novel complementarity between capital and income inequality leads to a significant amplification of the effects of monetary policy on consumption. We characterize this finding analytically and quantitatively, using a model with heterogeneity in household saving and income, nominal rigidities, and capital. A fiscal policy that redistributes capital income causes further amplification, whereas redistributing profits generates dampening.
Keywords: Monetary Policy; Capital; Income Inequality; Complementarity; Multiplier; Heterogeneity; Aggregate Demand
JEL Codes: E21; E22; E32; E44; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| capital inequality (E25) | aggregate demand shocks (E00) |
| income inequality (D31) | aggregate demand shocks (E00) |
| capital inequality (E25) | consumption (E21) |
| income inequality (D31) | consumption (E21) |
| capital income redistribution (E25) | household expenditure (D12) |
| profits redistribution (D33) | household expenditure (D12) |
| interest rate shock (E43) | consumption inequality (D31) |
| interest rate shock (E43) | income inequality (D31) |