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The Redistributive Effects of Monetary Policy


Olivier Ledoit


University of Zurich - Department of Economics

October 31, 2011

University of Zurich Department of Economics Working Paper No. 44

Abstract:     
We introduce a model of the economy as a social network. Two agents are linked to the extent that they transact with each other. This generates well-defi ned topological notions of location, neighborhood and closeness. We investigate the implications of our model for monetary economics. When a central bank increases the money supply, it must inject the money somewhere in the economy. We demonstrate that the agent closest to the location where money is injected is better off, and the one furthest is worse off . This redistribution channel is independent from the ones previously noted in the literature. Symmetrically, any decrease in the money supply redistributes purchasing power in the other direction. We also outline the testable implications of our model.

Number of Pages in PDF File: 24

Keywords: Money, redistribution, policy, central bank, social network, topology

JEL Classification: E40, E50

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Date posted: November 12, 2011  

Suggested Citation

Ledoit, Olivier, The Redistributive Effects of Monetary Policy (October 31, 2011). University of Zurich Department of Economics Working Paper No. 44. Available at SSRN: http://ssrn.com/abstract=1958202 or http://dx.doi.org/10.2139/ssrn.1958202

Contact Information

Olivier Ledoit (Contact Author)
University of Zurich - Department of Economics ( email )
Wilfriedstrasse 6
Zürich, 8032
Switzerland
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