Transmission of Monetary Policy with Heterogeneity in Household Portfolios

Principal Investigator(s):  View help for Principal Investigator(s) Ralph Luetticke, University College London

Version:  View help for Version V1

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Project Description

Summary:  View help for Summary
This paper assesses the importance of heterogeneity in household portfolios for the transmission of monetary policy in a New Keyne- sian business cycle model with uninsurable income risk and assets with different liquidity. In this environment, monetary transmis- sion works through investment, but redistribution lowers the elas- ticity of investment via two channels: 1) heterogeneity in marginal propensities to invest, 2) time variation in the liquidity premium. Monetary contractions redistribute to wealthy households who have high propensities to invest and a low marginal value of liquidity, thereby stabilizing investment. I provide empirical evidence for counter-cyclical liquidity premia and heterogeneity in household portfolio responses.

Scope of Project

Subject Terms:  View help for Subject Terms monetary policy; general equilibrium; heterogeneous agents
JEL Classification:  View help for JEL Classification
      E21 Macroeconomics: Consumption; Saving; Wealth
      E32 Business Fluctuations; Cycles
      E52 Monetary Policy
Data Type(s):  View help for Data Type(s) aggregate data; observational data; program source code


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Published Versions

V1 [2021-03-18]

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