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The transmission of monetary policy through redistributions and durable purchases

Sterk, Vincent and Tenreyro, Silvana (2018) The transmission of monetary policy through redistributions and durable purchases. Journal of Monetary Economics. ISSN 0304-3932

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Identification Number: 10.1016/j.jmoneco.2018.07.003

Abstract

Using a tractable OLG model with government debt, we study a redistribution channel for the transmission of monetary policy. Expansionary open-market operations generate a negative wealth effect, increasing households' incentives to save and pushing down the real interest rate. This leads to a substitution towards durables, generating a temporary boom in the durable-good sector. With search and matching frictions, the fall in interest rates causes an increase in labor demand, raising aggregate employment. The model mimics the empirical responses of key macroeconomic variables to monetary policy interventions. The fiscal policy stance plays a key role in the transmission mechanism.

Item Type: Article
Official URL: https://www.sciencedirect.com/journal/journal-of-m...
Additional Information: © 2018 Elsevier B.V.
Divisions: Economics
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
JEL classification: E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level; Inflation; Deflation
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations; Cycles
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy (Targets, Instruments, and Effects)
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies
Sets: Departments > Economics
Date Deposited: 04 Jul 2018 13:18
Last Modified: 08 Apr 2019 14:09
Projects: 681664
Funders: European Research Council
URI: http://eprints.lse.ac.uk/id/eprint/89056

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