Niels-Jakob H. Hansen
IIES, Stockholm University
NBER Working Papers and Publications
|July 2016||The New Keynesian Transmission Mechanism: A Heterogenous-Agent Perspective|
with Tobias Broer, Per Krusell, Erik Öberg: w22418
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, wor...