Optimal Monetary Policy and Liquidity with Heterogeneous Households - Archive ouverte HAL Access content directly
Journal Articles Review of Economic Dynamics Year : 2021

Optimal Monetary Policy and Liquidity with Heterogeneous Households

Abstract

A liquidity-insurance motive for monetary policy operates when heterogeneous households use government-provided liquidity (“money”) to insure idiosyncratic risk. In our tractable sticky-price model this changes the central bank's trade-off by adding a linear benefit of insurance in the second-order approximation to aggregate welfare. Inflation volatility hinders the consumption volatility of constrained households as a side-effect of liquidity-insuring them; but price stability has quantitatively significant welfare costs only when monopolistic rents are also large, which indicates a complementarity between imperfect-insurance and New-Keynesian distortions. Helicopter drops are welfare-superior to open-market operations to achieve insurance, but quantitatively their benefit is surprisingly small.
Fichier principal
Vignette du fichier
2019_Bilbiie_Ragot_Optimal-monetary-policy-and-liquidity-with-heterogeneous-households.pdf (562.29 Ko) Télécharger le fichier

Dates and versions

hal-03501417 , version 1 (30-12-2021)

Licence

Attribution - NonCommercial - NoDerivatives - CC BY 4.0

Identifiers

Cite

Florin Bilbiie, Xavier Ragot. Optimal Monetary Policy and Liquidity with Heterogeneous Households. Review of Economic Dynamics, 2021, 41, pp.71-95. ⟨10.1016/j.red.2020.10.003⟩. ⟨hal-03501417⟩
26 View
75 Download

Altmetric

Share

Gmail Facebook Twitter LinkedIn More