Working Paper: NBER ID: w29193
Authors: Christian K. Wolf
Abstract: In a textbook New Keynesian model extended to allow for uninsurable household income risk, any path of inflation and output implementable via interest rate policy is similarly implementable through uniform lump-sum transfers ("stimulus checks"). A dual-mandate policymaker can thus use checks to perfectly substitute for conventional monetary policy when rates are constrained by a lower bound. In a quantitative heterogeneous-agent (HANK) model, the stimulus check policy that implements a given monetary allocation is well-characterized by a small number of measurable sufficient statistics. In the household cross-section, the transfer policy is associated with lower consumption inequality than the equivalent rate cut.
Keywords: Interest Rate Cuts; Stimulus Payments; Equivalence Result; New Keynesian Model; Household Income Risk
JEL Codes: E2; E3; E6
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| interest rate policy (E43) | inflation (E31) |
| interest rate policy (E43) | output (C67) |
| lump-sum transfers (F16) | inflation (E31) |
| lump-sum transfers (F16) | output (C67) |
| interest rate policy (E43) | lump-sum transfers (F16) |
| lump-sum transfers (F16) | consumption inequality (D31) |
| interest rate cuts (E43) | consumption inequality (D31) |