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
D14 D31 E21 E3 E4 E5
Mots-clés
  • Optimal Ramsey Monetary Policy
  • Heterogeneous Households
  • Incomplete Markets
  • Money
  • Inequality
  • Helicopter Drops
Pages
  • 71-95
Version
  • 1
Volume
  • 41