WP Global Economy 2022.04.08
This is working paper.
The main objective of this paper is to investigate a monetary policy response to inequality in a Two-Agent New Keynesian (TANK) model with hand-to-mouth households. I derive the analytical condition for equilibrium determinacy and show that a monetary policy response to inequality is helpful in achieving equilibrium de terminacy. On the other hand, the impulse responses to structural shocks show that a monetary policy response to inequality does not necessarily reduce the volatilities of both inflation and output although it mitigates the volatility of inequality.
Keywords: Inequality; monetary policy; TANK; hand-to-mouth; equilibrium in determinacy
JEL classifications: E25; E31; E32; E52; E58