By Nils Gornemann, Keith Kuester and Makoto Nakajima
We build a New Keynesian model in which heterogeneous workers differ with regard to their employment status due to search and matching frictions in the labor market, their potential labor income, and their amount of savings. We use this laboratory to quantitatively assess who stands to win or lose from unanticipated monetary accommodation and who benefits most from systematic monetary stabilization policy. We find substantial redistribution effects of monetary policy shocks; a contractionary monetary policy shock increases income and welfare of the wealthiest 5 percent, while the remaining 95 percent experience lower income and welfare. Consequently, the negative effect of a contractionary monetary policy shock to social welfare is larger if heterogeneity is taken into account.
A fine example of how the recent literature analyzing monetary policy in a heterogeneous agent context can lead to interesting results. In particular, it goes against the generally held idea that monetary expansion benefits only the rich (through money injection in the banks).