Title: Does the FED care about income inequality? A quantitative examination
Authors: Stuart J. Fowler; Jennifer J. Fowler
Department of Economics, Middle Tennessee State University, MTSU Box 27, Murfreesboro, Tennessee, 37132, USA
Jack C. Massey College of Business, Belmont University, Nashville, Tennessee, 37212, USA
Abstract: We model various policy rules in settings that have non-trivial impacts on inequality. The policy rule that best describes the data is one that incorporates the Gini as an important component. In this case, a temporary and unexpected change to a more accommodative policy leads to a temporary improvement in inequality. Additionally, when there is deterioration in inequality, policy becomes more accommodative with a lag. For most calibrations, the reactionary policy rule benefits the workers at the cost of the capitalists; lifetime consumption of the worker is made smoother which increases their elasticity for labour resulting in a destabilised economy that is costly to the capital owners.
Keywords: inflation; income distribution; heterogeneous agents; inequality; accommodative monetary policy; VAR; Gini.
Int. J. of Monetary Economics and Finance, 2017 Vol.10, No.2, pp.183 - 205
Available online: 14 May 2017