We study optimal monetary policy in an analytically tractable Heterogeneous Agent New Keynesian model with rich cross-sectional heterogeneity. Optimal policy differs from that in a representative agent model because monetary policy can affect consumption inequality by reducing both idiosyncratic...

Introduction : from business-cycle measurement to macroeconomic theory -- Aggregate demand-- Aggregate supply-- AS-AD equilibrium and the propagation of macroeconomic shocks -- Unemployment fluctuations -- Monetary policy -- Fiscal policy -- The liquidity trap -- Unconventional monetary policies...

We study optimal monetary policy in a heterogeneous agent new Keynesian economy. A utilitarian planner seeks to reduce consumption inequality, in addition to stabilizing output gaps and inflation. The planner does so both by reducing income risk faced by households, and by reducing the...