Agenda

14 Oct 2024 12:15

Edouard Challe (Paris School of Economics)

Meeting Room 1, San Giobbe Economics Campus

Edouard Challe (Paris School of Economics) - Inequality and Optimal Monetary Policy in the Open Economy (with Sushant Acharya)

Abstract:

We study optimal monetary policy in a tractable Small Open Economy Heterogeneous-AgentNew Keynesian (SOE-HANK) model in which households face uninsured idiosyncratic risk and equal bond market access. We derive conditions under which optimal policy in our SOE-HANK economy entails domestic producer price stability, extending the “open-economy divine coincidence” result of Galı and Monacelli(2005) beyond the Representative-Agent benchmark (SOE-RANK). Away from those conditions, inefficient fluctuations in consumption inequality generate new monetary policy tradeoffs. Under plausible calibrations for the trade elasticities, the elasticity of intertemporal substitution, and the cyclicality of income risk, the central bank stabilizes output and the exchange rate more than in SOE-RANK.

Language

The event will be held in English

Organized by

Department of Economics (EcSeminars)

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