The Redistributive Effects of Monetary Policy

49 Pages Posted: 22 Mar 2017 Last revised: 10 Dec 2017

See all articles by Daniel Andrei

Daniel Andrei

McGill University

Bernard Herskovic

University of California, Los Angeles (UCLA) - Anderson School of Management

Olivier Ledoit

University of Zurich - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: November 30, 2017

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-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

Andrei, Daniel and Herskovic, Bernard and Ledoit, Olivier, The Redistributive Effects of Monetary Policy (November 30, 2017). Available at SSRN: https://ssrn.com/abstract=2938163 or http://dx.doi.org/10.2139/ssrn.2938163

Daniel Andrei

McGill University ( email )

1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5
Canada

Bernard Herskovic (Contact Author)

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

Los Angeles, CA 90095-1481
United States

HOME PAGE: http://bernardherskovic.com

Olivier Ledoit

University of Zurich - Department of Economics ( email )

Wilfriedstrasse 6
Zürich, 8032
Switzerland

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