Computational evidence on the distributive properties of monetary policy

Authored by Siyan Chen, Saul Desiderio

Date Published: 2018

DOI: 10.5018/economics-ejournal.ja.2018-62

Sponsors: No sponsors listed

Platforms: No platforms listed

Model Documentation: Other Narrative Mathematical description

Model Code URLs: Model code not found

Abstract

Empirical studies have pointed out that monetary policy may significantly affect income and wealth inequality. To investigate the distributive properties of monetary policy the authors resort to an agent-based macroeconomic model where firms, households and one bank interact on the basis of limited information and adaptive rules-of-thumb. Simulations show that the model can replicate fairly well a number of stylized facts, especially those relative to the business cycle. The authors address the issue using three types of computational experiments, including a global sensitivity analysis carried out through a novel methodology which greatly reduces the computational burden of simulations. The result emerges that a more restrictive monetary policy increases inequality, even though this effect may differ across groups of households. In addition, it appears to be attenuated if the bank's willingness to lend is lower. The overall analysis suggests that inequality can constitute valuable information also for central banks.

Tags

Agent-based model Agent-based models Dynamics Economic inequality global sensitivity analysis Inequality monetary policy transmission Credit Macroeconomic model Firms Stock-flow consistency Inflation Nk-dsge models Channel