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Transmission of Monetary Policy with Heterogeneity in Household Portfolios

Luetticke, R; (2021) Transmission of Monetary Policy with Heterogeneity in Household Portfolios. American Economic Journal: Macroeconomics , 13 (2) pp. 1-25. 10.1257/mac.20190064. Green open access

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Abstract

This paper assesses the importance of heterogeneity in household portfolios for the transmission of monetary policy in a New Keynesian business cycle model with uninsurable income risk and assets with different liquidity. In this environment, monetary transmission works through investment, but redistribution lowers the elasticity of investment via two channels: (i) heterogeneity in marginal propensities to invest, and (ii) time variation in the liquidity premium. Monetary contractions redistribute to wealthy households who have high propensities to invest and a low marginal value of liquidity, thereby stabilizing investment. I provide empirical evidence for countercyclical liquidity premia and heterogeneity in household portfolio responses.

Type: Article
Title: Transmission of Monetary Policy with Heterogeneity in Household Portfolios
Open access status: An open access version is available from UCL Discovery
DOI: 10.1257/mac.20190064
Publisher version: https://doi.org/10.1257/mac.20190064
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.
UCL classification: UCL
UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > UCL SLASH
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/10104586
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