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The Impacts of Banking on the Effects of Monetary Policy on Inequality: A Study in a HANK Framework

Vaziri, Amir Hossein | 2022

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  1. Type of Document: M.Sc. Thesis
  2. Language: Farsi
  3. Document No: 55280 (44)
  4. University: Sharif University of Technology
  5. Department: Management and Economics
  6. Advisor(s): Madanizadeh, Ali; Mahmouzadeh, Amineh
  7. Abstract:
  8. This study wants to analyze the effects of the banking system on the transmission of monetary policy and its impact on wealth inequality. We use a continuous time heterogeneous framework with heterogeneity for households and capital producers. The model is an extended version of a two-asset heterogeneous agent New Keynesian model with heterogeneous capital producers and a bank with liquidity transformation. The production block consists of a final-good producer, intermediate-good producers, and capital-good producers. Capital good producers could get loans from the bank but have a borrowing constraint. We found that a) an expansionary monetary policy increases the issued loans, which leads to increased investment and production b) Bank's liquidity transformation creates a self-intensifier mechanism that increases the loans as a result of an increase in liquidity deposit holdings of capital producers when an increase in investment occurs c) Heterogeneity and borrowing constraint for the households increases the marginal propensity to consume compared to the representative models which increase the effects of a monetary policy on consumption d) Banking system increases the liquid asset holding inequality and decreases the illiquid asset holding inequality between households.

  9. Keywords:
  10. Financial Intermediation ; Inequality ; Heterogeneous Model ; Monetary Policy ; Liquidity Management ; Borrowing Constraint ; Monetary Policy Transmission Mechanisms ; Liquidity Transformation

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