Discussion paper

DP14118 Capital and Income Inequality: An Aggregate-Demand Complementarity

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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Citation

Bilbiie, F, D Känzig and P Surico (eds) (2019), “DP14118 Capital and Income Inequality: An Aggregate-Demand Complementarity ”, CEPR Press Discussion Paper No. 14118. https://cepr.org/publications/dp14118-3