The Redistributive Effects of Monetary Policy
49 Pages Posted: 22 Mar 2017 Last revised: 10 Dec 2017
Date Written: November 30, 2017
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-defined 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. The agent closest to the location where money is injected is better off, while the one furthest is worse off. Symmetrically, any decrease in the money supply redistributes purchasing power in the other direction. This redistribution channel is independent from other previously studied channels. Our model’s theoretical predictions are supported by the data.
Keywords: Monetary policy, redistribution, networks
JEL Classification: E52, E58
Suggested Citation: Suggested Citation