Paweł Kopiec, 06 December 2019

Research shows that individual spending behaviour is heterogeneous across households and that it depends on characteristics such as income and wealth. Using Italian data, this column shows that household heterogeneity plays a crucial role in the propagation of fiscal expenditure shocks. Household inequality gives rise to a rich set of new channels that propagate government expenditures shocks through consumer spending, which are related to households’ balance sheets and monetary-fiscal interactions. The values of the fiscal multiplier diverge from those predicted by the standard macroeconomic framework and the difference is particularly large at the zero lower bound.

Olivier Coibion, Yuriy Gorodnichenko, Lorenz Kueng, John Silvia, 25 October 2014

There are several conflicting channels through which monetary policy could affect the distribution of wealth, income, and consumption. This column argues that contractionary monetary policy raised inequality in the US, while expansionary monetary policy lowered it. This evidence stresses the need for monetary policy models that take into account heterogeneity across households. Current monetary policy models may significantly understate the welfare costs of zero-bound episodes.   

CEPR Policy Research