Working Paper: NBER ID: w25220
Authors: Guillaume Rocheteau; Pierre-Olivier Weill; Tsznga Wong
Abstract: We develop a New Monetarist model with expenditure and unemployment risks that generates equilibria with non-degenerate distribution of money holdings. Distributional effects can overturn key insights of the model with degenerate distributions, e.g., the value of money depends on the income distribution; a one-time money injection raises aggregate real balances in the short run price adjustments look sluggish; anticipated inflation can raise output and welfare; there can be a long-run trade-o¤ between inflation and unemployment. Distributional effects also generate a quantitatively significant aggregate demand channel through which transfers financed with money creation can raise employment, and productivity shocks are amplified.
Keywords: Monetary Policy; Unemployment; Income Distribution
JEL Codes: E40; E50
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| one-time money injection (E65) | aggregate real balances (E10) |
| anticipated inflation (E31) | output (C67) |
| anticipated inflation (E31) | welfare (I38) |
| income distribution (D31) | firm profits (L21) |
| income distribution (D31) | unemployment rates (J64) |
| money injection (E51) | employment (J68) |
| money injection (E51) | productivity (O49) |
| income distribution (D31) | aggregate demand (E00) |
| liquidity redistribution (F32) | employment (J68) |
| liquidity redistribution (F32) | productivity (O49) |
| monetary policy effectiveness (E52) | labor market state (J48) |