Type
Article
Titre
Monetary Policy with Heterogeneous Agents and Borrowing Constraints
Dans
Review of Economic Dynamics
Éditeur
US : Elsevier
Volume
13
Numéro
2
Pages
295 - 316 p.
ISSN
10942025
DOI
10.1016/j.red.2009.05.001
Mots clés
Monetary Policy, Incomplete Markets
Résumé
EN
We show that the long-run neutrality of inflation on capital accumulation obtained in complete market models no longer holds when households face binding credit constraints. Borrowing-constrained households are not able to rebalance their financial portfolio when inflation varies, and thus adjust their money holdings differently compared to unconstrained households. This heterogeneity leads to a new precautionary savings motive, which implies that inflation increases capital accumulation. We quantify the importance of this new channel in an incomplete market model where the traditional redistributive effects of inflation are also introduced. We show that this model provides a quantitative rationale for the observed hump-shaped relationship between inflation and capital accumulation.

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