Optimal Monetary Policy with Heterogeneous Agents: Discretion, Commitment, and Timeless Policy / Eduardo Dávila, Andreas Schaab.

By:

Dávila, Eduardo

Contributor(s):

Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w30961.Publication details: Cambridge, Mass. National Bureau of Economic Research 2023.Description: 1 online resource: illustrations (black and white)Subject(s):

Other classification:

Online resources:

Available additional physical forms:

Hardcopy version available to institutional subscribers

Abstract: This paper characterizes optimal monetary policy in a canonical heterogeneous-agent New Keynesian (HANK) model with wage rigidity. Under discretion, a utilitarian planner faces the incentive to redistribute towards indebted, high marginal utility households, which is a new source of inflationary bias. With commitment, i) zero inflation is the optimal long-run policy, ii) time-consistent policy requires both inflation and distributional penalties, and iii) the planner trades off aggregate stabilization against distributional considerations, so Divine Coincidence fails. We compute optimal stabilization policy in response to productivity, demand, and cost-push shocks using sequence-space methods, which we extend to Ramsey problems and welfare analysis.

Tags from this library: No tags from this library for this title. Log in to add tags.

Average rating: 0.0 (0 votes)

Holdings
Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w30961 (Browse shelf(Opens below))	Not For Loan

Total holds: 0

Collection: Colección NBER Close shelf browser (Hides shelf browser)

Previous	No cover image available	No cover image available	No cover image available	No cover image available	No cover image available	No cover image available	No cover image available	Next
Previous	nber w30959 A Tractable Income Process for Business Cycle Analysis /	nber w3096 The Capital Levy in Theory and Practice /	nber w30960 Immigration, The Long-Term Care Workforce, and Elder Outcomes in the U.S. /	nber w30961 Optimal Monetary Policy with Heterogeneous Agents: Discretion, Commitment, and Timeless Policy /	nber w30962 A Mother's Voice: Impacts of Spousal Communication Training on Child Health Investments /	nber w30963 Beware the Side Effects: Capital Controls, Trade, Misallocation and Welfare /	nber w30964 Parental Education and Invention: The Finnish Enigma /	Next

February 2023.

This paper characterizes optimal monetary policy in a canonical heterogeneous-agent New Keynesian (HANK) model with wage rigidity. Under discretion, a utilitarian planner faces the incentive to redistribute towards indebted, high marginal utility households, which is a new source of inflationary bias. With commitment, i) zero inflation is the optimal long-run policy, ii) time-consistent policy requires both inflation and distributional penalties, and iii) the planner trades off aggregate stabilization against distributional considerations, so Divine Coincidence fails. We compute optimal stabilization policy in response to productivity, demand, and cost-push shocks using sequence-space methods, which we extend to Ramsey problems and welfare analysis.