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Quantitative Easing with Heterogeneous Agents

Cui, W; Sterk, V; (2021) Quantitative Easing with Heterogeneous Agents. Journal of Monetary Economics 10.1016/j.jmoneco.2021.07.007. (In press).

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We study the effects of Quantitative Easing (QE) in a heterogeneous-agents model with liquid and partially liquid wealth, and nominal rigidities. The direct macroeconomic effect of QE is determined by the difference in marginal propensities to consume out of the two types of wealth, which is large according to empirical studies. Therefore, the effects of QE on aggregate output and inflation are significant, according to the model. Indeed, the estimated model reveals that QE interventions greatly dampened the U.S. Great Recession, by expanding household liquidity. However, QE may have strong and adverse distributional effects, compared to interest rate policy.

Type: Article
Title: Quantitative Easing with Heterogeneous Agents
DOI: 10.1016/j.jmoneco.2021.07.007
Publisher version: https://doi.org/10.1016/j.jmoneco.2021.07.007
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: Monetary policy, Large-scale asset purchases, Household liquidity
UCL classification: UCL
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/10133342
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