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Capital and income inequality: an aggregate-demand complementarity

Subject

Economics

Publishing details

CEPR discussion paper

Authors / Editors

Bilbiie F O;Kanzig D;Surico P

Biographies

Paolo Surico

Publication Year

2021

Abstract

A novel complementarity between capital and income inequality leads to a significant amplification of the effects of monetary policy on consumption. We characterize this finding analytically and quantitatively, using a model with heterogeneity in household wealth and income, nominal rigidities, capital, and idiosyncratic risk. A fiscal policy that redistributes capital income causes further amplification, whereas redistributing profits generates dampening.

Keywords

Aggregate demand; Capital; Complementarity; Heterogeneity; Income inequality; Monetary policy; Multiplier

Series Number

14118-4

Series

CEPR discussion paper

Available on ECCH

No

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