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Monetary Policy and Redistribution in Open Economies

Author

Listed:
  • Xing Guo
  • Pablo Ottonello
  • Diego J. Perez
Abstract
This paper develops an open-economy heterogeneous-agent New Keynesian model in which households differ in their income, wealth, and real and financial integration with international markets. We use the model to reassess classic questions in international macroeconomics from a distributional perspective. Our analysis yields two main takeaways. First, heterogeneity in households’ international integration plays a central role in driving the unequal consumption responses to external shocks, more so than income and wealth. Second, the conduct of monetary policy in open economies faces a stabilization-inequality trade-off, with fixed exchange rate regimes leading to amplified but more equal consumption responses to external shocks.

Suggested Citation

  • Xing Guo & Pablo Ottonello & Diego J. Perez, 2023. "Monetary Policy and Redistribution in Open Economies," Journal of Political Economy Macroeconomics, University of Chicago Press, vol. 1(1), pages 191-241.
    • Handle: RePEc:ucp:jpemac:doi:10.1086/723410
    DOI: 10.1086/723410
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    8. Chen, Sihao & Devereux, Michael B. & Shi, Kang & Xu, Juanyi, 2023. "Consumption heterogeneity and monetary policy in an open economy," Journal of Monetary Economics, Elsevier, vol. 140(C), pages 1-15.
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    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles

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