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Redistributive Policy Shocks and Monetary Policy with Heterogeneous Agents

Author

Listed:
  • Ojasvita Bahl

    (Indian Statistical Institute, Delhi)

  • Chetan Ghate

    (Indian Statistical Institute, Delhi)

  • Debdulal Mallick

    (Deakin University)

Abstract
Governments in EMDEs routinely intervene in agriculture markets to stabilize food prices in the wake of adverse domestic or external shocks. Such interventions typically involve a large increase in the procurement and redistribution of food, which we call a redistributive policy shock. What is the impact of a redistributive policy shock on the sectoral and aggregate dynamics of ináation, and the distribution of consumption amongst rich and poor households? To address this, we build a tractable two-sector (agriculture and manufacturing) two-agent (rich and poor) New Keynesian DSGE model with redistributive policy shocks. We calibrate the model to the Indian economy. We show that for an ináation targeting central bank, consumer heterogeneity matters for whether monetary policy responses to a variety of shocks raises aggregate welfare or not. Our paper contributes to a growing literature on understanding the role of consumer heterogeneity in monetary policy

Suggested Citation

  • Ojasvita Bahl & Chetan Ghate & Debdulal Mallick, 2020. "Redistributive Policy Shocks and Monetary Policy with Heterogeneous Agents," Discussion Papers 20-03, Indian Statistical Institute, Delhi.
    • Handle: RePEc:alo:isipdp:20-03
    as

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    File URL: https://www.isid.ac.in/~epu/dispapers/dp20_03.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    TANK models; HANK Models; Ináation Targeting; Emerging Market and Developing Economies; Food Security; Procurement and Redistribution; DSGE;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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