Bilbiie, F O, Känzig, D R and Surico, P (2022) Capital and Income Inequality: an Aggregate-Demand Complementarity. Journal of Monetary Economics, 126. pp. 154-169. ISSN 0304-3932
Abstract
A novel complementarity between capital and income inequality leads to a significant amplification of the effects of aggregate-demand shocks on consumption. We characterize this finding using a simple 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. After an interest rate shock, consumption inequality is more countercyclical than income inequality, consistent with the available empirical evidence. Procyclical investment also requires a more aggressive Taylor rule in order to attain determinacy, and aggravates the forward guidance puzzle.
More Details
Item Type: | Article |
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Subject Areas: | Economics |
Additional Information: |
© 2022 Elsevier. This manuscript version is made available under the CC-BY-NC-ND licence
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Funder Name: | European Research Council |
Date Deposited: | 07 Feb 2022 14:28 |
Date of first compliant deposit: | 26 Apr 2022 |
Subjects: |
Interest rates Monetary economics |
Last Modified: | 12 Nov 2024 16:42 |
URI: | https://lbsresearch.london.edu/id/eprint/2209 |