Disinflation, Inequality and Welfare in a TANK Model

Abstract

We investigate the redistributive and welfare e¤ects of disin ‡ation in a two-agent New Keynesian (TANK) model characterized by Limited Asset Market Participation (LAMP) and wealth inequality. We highlight two key mechanisms driving our long-run results: i) the cash in advance constraint on …rms working capital (CIA); ii) dividends endogeneity. These two channels point in opposite directions. Lower in ‡ation softens the CIA and, by raising labor demand, lowers inequality. But the disin ‡ation also raises dividends and this increases inequality. The disin ‡ation is always welfare-improving for asset holders. We obtain ambiguous results for non-asset holders, who su¤er substantial consumption losses during the transition. JEL Classi…cation System: E31, E5, D3, D6

Does Quantitative Easing Affect People’s Personal Financial Situation and Economic Inequality? The View of the German Population

“…They discover that expansionary monetary policy in Japan reduced the gender pay gap, but increased the education pay gap; it has had no significant impact on the age pay gap. At a theoretical level, Ferrara and Tirelli (2019) investigate disinflation and inequality in a two-agent New Keynesian model, finding two main transition channels. First, lower inflation softens the cash in advance constraint on firms' working capital, which raises labour demand and lowers inequality.…”

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