Inequality and optimal monetary policy in the open economy
Bibliographic Data
| ID | 19037375 |
|---|---|
| Authors | Sushant Acharya (0000-0002-9155-8127), Edouard Challe (corresponding author) |
| Year | 2025 |
| Volume | 155 |
| Pages | 104076-104076 |
| Publication date | 2025-03-11 |
| Open Access | Yes |
| Type | ARTICLE |
| Venue | Journal of International Economics (JOURNAL) |
| Journal identifiers | ISSN: 0022-1996 • E-ISSN: 1873-0353 |
| Publisher | Elsevier BV (PUBLISHER) |
| DOI | 10.1016/j.jinteco.2025.104076 |
| OpenAlex | W4408327724 |
| Language | EN |
| References cited | 30 |
We study optimal monetary policy in a tractable Small Open Economy Heterogeneous-Agent New Keynesian (SOE-HANK) model in which households face uninsured idiosyncratic risk and unequal 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 Galí and Monacelli (2005) beyond the Representative-Agent benchmark (SOE-RANK). Away from those conditions, inefficient fluctuations in consumption inequality generate 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
Economics · Exchange rate · Inequality · Keynesian economics · Macroeconomics · Monetary economics · Monetary policy · Open economy · Small open economy · Economic theories and models · Economic Theory and Policy · Monetary Policy and Economic Impact
| Highly cited | No |
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