Income Distribution And Shock Transmission

Our very simple two agent New Keynesian model is highly stylised. It consists of an entrepreneur, who owns the economies' firms, consumes and saves, but does not work (or does not receive wage income), while the worker consumes and works, but cannot save. The allocation of the ability to save only to entrepreneurs instead of only workers differentiates our model from the only similarly simple model we are aware of Broer et al. (2016). As opposed to Broer et al. (2016), who additionally require the introduction of sticky wages in their saving-worker-nonsaving-entrepreneur-model we find that our heterogeneous agent version gives qualitatively quite similar impulse responses to a monetary policy shocks already in the baseline version with sticky-prices only. Quantitatively, the response of monetary policy is weaker in the heterogeneous agent model, hinting at the importance of (the correct representation of) heterogeneity for the transmission of monetary policy. Additionally, the model allows to consider distributional effects in the wake of a shock. They appear to be in line with empirics for monetary and preference shocks.