Optimal Monetary Policy and Liquidity with Heterogeneous Households
Article dans une revue: A liquidity-insurance motive for monetary policy operates when heterogeneous households use government-provided liquidity (“money”) to insure idiosyncratic risk. In our tractable sticky-price model this changes the central bank's trade-off by adding a linear benefit of insurance in the second-order approximation to aggregate welfare. Inflation volatility hinders the consumption volatility of constrained households as a side-effect of liquidity-insuring them; but price stability has quantitatively significant welfare costs only when monopolistic rents are also large, which indicates a complementarity between imperfect-insurance and New-Keynesian distortions. Helicopter drops are welfare-superior to open-market operations to achieve insurance, but quantitatively their benefit is surprisingly small.
Auteur(s)
Florin Bilbiie, Xavier Ragot
Revue
- Review of Economic Dynamics
Date de publication
- 2021
Mots-clés JEL
Mots-clés
- Optimal Ramsey Monetary Policy
- Heterogeneous Households
- Incomplete Markets
- Money
- Inequality
- Helicopter Drops
Pages
- 71-95
URL de la notice HAL
Version
- 1
Volume
- 41