We construct a monetary economy in which agents face aggregate demand shocks and heterogeneous idiosyncratic preference shocks. We show that, even when the Friedman rule is the best interest rate policy the central bank can implement, not all agents are satiated at the zero lower bound and...

This paper studies the mood fluctuation of a typical consumer with recursive preference and the welfare cost of reduced growth and business cycle. We estimate the welfare cost using discrete recursive function as well as conduct simulation in order to compare our results with other existing...