Inequality and the Zero Lower Bound / Jesús Fernández-Villaverde, Joël Marbet, Galo Nuño, Omar Rachedi.

Format:

Book

Author/Creator:

Fernández-Villaverde, Jesús.

Contributor:

National Bureau of Economic Research.

Marbet, Joël.

Nuño, Galo.

Rachedi, Omar.

Series:

Working Paper Series (National Bureau of Economic Research) no. w31282.

NBER working paper series no. w31282

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2023.

Summary:

This paper studies how household inequality shapes the effects of the zero lower bound (ZLB) on nominal interest rates on aggregate dynamics. To do so, we consider a heterogeneous agent New Keynesian (HANK) model with an occasionally binding ZLB and solve for its fully non-linear stochastic equilibrium using a novel neural network algorithm. In this setting, changes in the monetary policy stance influence households' precautionary savings by altering the frequency of ZLB events. As a result, the model features monetary policy non-neutrality in the long run. The degree of long-run non-neutrality, i.e., by how much monetary policy shifts real rates in the ergodic distribution of the model, can be substantial when we combine low inflation targets and high levels of wealth inequality.

Notes:

Print version record

May 2023.