Optimal Monetary Policy in HANK Economies

DEPARTEMENT ECONOMIE ET SCIENCES DE LA DECISION

Intervenant :  Suschant ACHARYA (New York Fed)

HEC Campus- Bâtiment T - Salle T020

Abstract :

We characterize the optimal conduct of monetary policy in the presence of incomplete markets using an analytically tractable model. Our analytically tractablability environment allows us to shed light on precisely how the lack of full insurance forces optimal monetary policy to behave differently than in a representative agent economy. We show that a utilitarian monetary authority optimally is "more stimulatory" than under the RANK benchmark. We also highlight a new source of time-inconsistency that the market incompleteness introduces. We further show that models which adopt a zero-liquidity limit for tractability miss out on this important channel.