Working Paper: CEPR ID: DP14159
Authors: Lilia Maliar; Christopher Naubert
Abstract: We study how the transmission of monetary policy innovations is affected by the endogenous response of the central bank to macroeconomic aggregates in a two-agent New Keynesian model. We focus on how the stance of monetary policy and the fraction of savers in the economy affect transmission. We show that the indirect effect of an innovation is negative when the indirect real rate effect exceeds the indirect income effect. The relative magnitude of the indirect real rate effect increases with the share of savers and the strength of the central bank’s response and decreases with the horizon of the innovation.
Keywords: Forward Guidance; New Keynesian Model; Tank; Redistribution
JEL Codes: C61; C63; C68; E31; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| monetary policy shocks (E39) | economic outcomes (F61) |
| future monetary policy shocks (E39) | economic outcomes (F61) |
| contemporaneous monetary policy shocks (E39) | economic outcomes (F61) |
| asset market participation (G19) | effectiveness of forward guidance (E60) |
| asset market participation (G19) | consumption inequality (D31) |
| asset market participation (G19) | income inequality (D31) |
| markups (D43) | consumption (E21) |
| markups (D43) | income inequality (D31) |
| capital adjustment costs (G31) | consumption inequality (D31) |
| capital adjustment costs (G31) | income inequality (D31) |
| monetary policy shocks (E39) | cyclicality of consumption (E21) |
| monetary policy shocks (E39) | cyclicality of income inequality (D31) |