Working Paper

Monetary Policy with Racial Inequality

Abstract: I develop a heterogeneous-agent New-Keynesian model featuring racial inequality in income and wealth, and studies interactions between racial inequality and monetary policy. Black and Hispanic workers gain more from accommodative monetary policy than White workers mainly due to higher labor market risks. Their gains are larger also because of a larger proportion of them are hand-to-mouth, while wealthy White workers gain more from asset price appreciation. Monetary and fiscal policies are substitutes in providing insurance against cyclical labor market risks. Racial minorities gain even more from an accommodative monetary policy in the absence of income-dependent fiscal transfers.

Keywords: Business cycle; Marginal Propensity to Consume; Monetary policy; Labor market; Heterogeneous agents; Hand-to-mouth; Unemployment; Wealth distribution; Racial inequality;

JEL Classification: J64; J15; E52; E21;

https://doi.org/10.21034/iwp.70

Bibliographic Information

Provider: Federal Reserve Bank of Minneapolis

Part of Series: Opportunity and Inclusive Growth Institute Working Papers

Publication Date: 2023-04-19

Number: 070