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: monetary policy; racial inequality; labor market; unemployment; wealth distribution; hand-to-mouth; marginal propensity to consume; business cycle; heterogeneous agents;

JEL Classification: E21; E52; J15; J64;

https://doi.org/10.21799/frbp.wp.2023.09

Bibliographic Information

Provider: Federal Reserve Bank of Philadelphia

Part of Series: Working Papers

Publication Date: 2023-05-30

Number: 23-09