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Monetary transmission with income risk.
- Source :
- Scandinavian Journal of Economics; Apr2023, Vol. 125 Issue 2, p441-460, 20p
- Publication Year :
- 2023
-
Abstract
- In periods of distress, observed and perceived income risk tends to rise. Does this heightened income risk affect monetary transmission? This paper first shows that in partial equilibrium, heightened income risk dampens the substitution effect of interest rate changes but amplifies the indirect income effect of wage changes. The effects are sizable in partial equilibrium. An increase in income risk consistent with heightened risk during recessions affects interest rate and wage responses by around oneāthird. However, because income risk dampens the effects of interest rate changes but amplifies the effects of wage changes, its effect is weaker in general equilibrium, dampening monetary transmissions to consumption by around 11 percent. [ABSTRACT FROM AUTHOR]
Details
- Language :
- English
- ISSN :
- 03470520
- Volume :
- 125
- Issue :
- 2
- Database :
- Complementary Index
- Journal :
- Scandinavian Journal of Economics
- Publication Type :
- Academic Journal
- Accession number :
- 163813447
- Full Text :
- https://doi.org/10.1111/sjoe.12516