Template-Type: ReDIF-Paper 1.0
Author-Name: Jesús Fernández-Villaverde
Author-X-Name-First: Jesús
Author-X-Name-Last: Fernández-Villaverde
Author-Name: Joël Marbet
Author-X-Name-First: Joël
Author-X-Name-Last: Marbet
Author-Name: Galo Nuño Barrau
Author-X-Name-First: Galo
Author-X-Name-Last: Nuño Barrau
Author-Name: Omar Rachedi
Author-X-Name-First: Omar
Author-X-Name-Last: Rachedi
Title: Inequality and the zero lower bound
Abstract: This paper studies how household inequality shapes the effects of the zero lower bound (ZLB) on nominal interest rates on aggregate dynamics. To do so, we consider a heterogeneous agent New Keynesian (HANK) model with an occasionally binding ZLB and solve for its fully non-linear stochastic equilibrium using a novel neural network algorithm. In this setting, changes in the monetary policy stance influence households' precautionary savings by altering the frequency of ZLB events. As a result, the model features monetary policy non-neutrality in the long run. The degree of long-run non-neutrality, i.e., by how much monetary policy shifts real rates in the ergodic distribution of the model, can be substantial when we combine low inflation targets and high levels of wealth inequality.
Creation-Date: 2024-01
File-URL: https://www.bis.org/publ/work1160.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work1160.htm
File-Format: text/html
Number: 1160
Keywords: heterogeneous agents, HANK models, neural networks, non-linear dynamics
Classification-JEL: D31, E12, E21, E31, E43, E52, E58
Handle: RePEc:bis:biswps:1160