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Discussion Paper Details

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Title: Capital and Income Inequality: An Aggregate-Demand Complementarity

Author(s): Florin Ovidiu Bilbiie, Diego R Känzig and Paolo Surico

Publication Date: November 2019

Keyword(s): aggregate demand, Capital, Complementarity, Heterogeneity, Income inequality, monetary policy and multiplier

Programme Area(s): Monetary Economics and Fluctuations

Abstract: A novel complementarity between capital and income inequality leads to a significant amplification of the effects of monetary policy on consumption. We characterize this finding analytically and quantitatively, using a model with heterogeneity in household saving and income, nominal rigidities, and capital. A fiscal policy that redistributes capital income causes further amplification, whereas redistributing profits generates dampening.

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Bibliographic Reference

Bilbiie, F, Känzig, D and Surico, P. 2019. 'Capital and Income Inequality: An Aggregate-Demand Complementarity '. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=14118