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The transmission of monetary policy through redistributions and durable purchases

Sterk, V; Tenreyro, S; (2018) The transmission of monetary policy through redistributions and durable purchases. Journal of Monetary Economics , 99 pp. 124-137. 10.1016/j.jmoneco.2018.07.003.

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Abstract

Using a tractable OLG model with government debt, we study a redistribution channel for the transmission of monetary policy. Expansionary open-market operations generate a negative wealth effect, increasing households’ incentives to save and pushing down the real interest rate. This leads to a substitution towards durables, generating a temporary boom in the durable-good sector. With search and matching frictions, the fall in interest rates causes an increase in labor demand, raising aggregate employment. The model mimics the empirical responses of key macroeconomic variables to monetary policy interventions. The fiscal policy stance plays a key role in the transmission mechanism.

Type: Article
Title: The transmission of monetary policy through redistributions and durable purchases
DOI: 10.1016/j.jmoneco.2018.07.003
Publisher version: https://doi.org/10.1016/j.jmoneco.2018.07.003
Language: English
Additional information: This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions.
Keywords: Open Market Operations, Durables, Heterogeneous Agents
UCL classification: UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > UCL SLASH
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of SandHS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/10051489
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