The New Keynesian Transmission Mechanism: A Heterogenous-Agent Perspective

Tobias Broer, Niels-Jakob H. Hansen, Per Krusell, Erik Öberg

NBER Working Paper No. 22418
Issued in July 2016
NBER Program(s):Monetary Economics

We argue that a 2-agent version of the standard New Keynesian model—where a “worker” receives only labor income and a “capitalist” only profit income— offers insights about how income inequality affects the monetary transmission mechanism. Under rigid prices, monetary policy affects the distribution of consumption, but it has no effect on output as workers choose not to change their hours worked in response to wage movements. In the corresponding representative-agent model, in contrast, hours do rise after a monetary policy loosening due to a wealth effect on labor supply: profits fall, thus reducing the representative worker’s income. If wages are rigid too, however, the monetary transmission mechanism is active and resembles that in the corresponding representative-agent model. Here, workers are not on their labor supply curve and hence respond passively to demand, and profits are procyclical.

You may purchase this paper on-line in .pdf format from ($5) for electronic delivery.

Access to NBER Papers

You are eligible for a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.


Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w22418

Users who downloaded this paper also downloaded* these:
Prescott w22422 RBC Methodology and the Development of Aggregate Economic Theory
Kaplan, Moll, and Violante w21897 Monetary Policy According to HANK
Cochrane w22485 Macro-Finance
Benati, Lucas, Nicolini, and Weber w22475 International Evidence on Long Run Money Demand
Reis w22415 QE in the future: the central bank’s balance sheet in a fiscal crisis
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us