In New Keynesian models nominal rigidities determine socially ineffi - cient outcomes. Our paper reverses this view: properly designed monetary policies may take advantage of predetermined nominal wages to discipline monopolistic wage setters. This, in turn, requires accepting a non-zero in-...

We challenge the widely held belief that New Keynesian models cannot predict optimal positive inflation rates. In fact, interest rates are justified by the Phelps argument that monetary financing can alleviate the burden of distortionary taxation. We obtain this result because, in contrast with...

We challenge the widely held belief that New-Keynesian models cannot predict optimal positive in‡ ations. We finnd that these are justified by the Phelps argument. This mainly happens because we also consider distortionary expects of public transfers. Our predictions are broadly consistent...

This paper analyzes the impact of monetary policy on household saving in Japan between 1993 and 2017. Using annual data from the Japan Panel Survey of Consumers it is shown that monetary expansion has contributed to a widening gap in households’ net saving through an adverse effect on the...

We estimate the "unhedged interest rate exposure" (URE) of euro area households. The URE is a welfare metric that captures the extent to which households are exposed to changes in real interest rates, and reflects the direct gains and losses in interest income flows incurred by households after...

We study how income inequality affects monetary policy through the inequality-household debt channel. We design a minimal macro Agent-Based model that replicates several stylized facts, including two novel ones: falling aggregate saving rate and decreasing bankruptcies during the household's...

Consumer credit spreads significantly impact consumption and asset dynamics, affecting indebted households' spending behavior and the income sensitivity of consumption. Analyzing Danish data, we find that elevated credit spreads reduce consumption of indebted households. Our results suggest that...

How does a monetary union alter the impact of business cycle shocks at the household level? We develop a Heterogeneous Agent New Keynesian model of two countries (HANK2) and show in closed form that a monetary union shifts the adjustment to a shock horizontally - across countries - within the...

Using a VAR model of the American economy from 1984 to 2003, we find that, contrary to official claims, the Federal Reserve does not target inflation or react to inflation signals.ʺ Rather, the Fed reacts to the very realʺ signal sent by unemployment, in a way that suggests that a baseless...

The intergenerational income elasticity is a crucial measure of income mobility. In this paper we develop a structural model to examine the channels through which this elasticity operates. Using data from the Panel Study of Income Dynamics, we separately identify the human capital and the...