Redistribution and Optimal Monetary Policy
Daeha Cho, Kwang Hwan Kim
Journal of Economic Theory and Econometrics | Korean Economic Society | Published : 2018
This paper departs from the representative-agent assumption and investigates how optimal monetary policy should be conducted in a two-agent New Keynesian (TANK) model. Relative to a price stability motive that typically appears as policy prescriptions in representative-agent New Keynesian (RANK) models, heterogeneity adds a motive to spread aggregate fluctuations equally across all households. We show that the latter motive hinges on how fiscal transfers are implemented with the business cycle.