Research

I study how monetary policy affects both economic aggregates and the distribution of wealth in an economy where households differ in the rates of return that they earn on investments. In my model, the wealth distribution arises from households earning returns that differ from one another, but are all driven by aggregate demand. A decrease in the policy rate then increases aggregate demand, which redistributes towards households who earn higher returns. This redistribution increases both aggregate Total Factor Productivity and wealth inequality following a monetary expansion, as occurs in the data. With productivity endogenous to monetary policy, the overall effect of a change in policy is determined by the amount of redistribution that it induces. As a result of two countervailing forces, the power of monetary policy is hump-shaped in the degree of wealth inequality: when inequality is very low or very high, monetary policy is less effective than when inequality takes a moderate value. Calibrating my model to the data suggests that the increase in wealth inequality over the past fifty years can account for the decrease in the effect of monetary policy on output documented over the same period. 

This paper studies wealth mobility, the rate at which households change their position relative to one another in the wealth distribution. The US wealth data show a substantial amount of wealth mobility over short horizons. A standard heterogeneous-agents, incomplete markets model with labor income risk generates far less wealth mobility than in the data, even with the addition of standard augmentations to the income process that produce realistic wealth inequality. Agents facing income risk self-insure, accumulating assets in order to smooth consumption. This self-insurance motive slows the pace with which agents move through the wealth distribution. In the data, we find that families that make large moves through the wealth distribution over short time periods are more likely to receive shocks directly to their wealth, such as capital gains or losses from ownership of stocks or business. We find that incorporating idiosyncratic return risk produces mobility in line with the data. Across models that produce equal wealth inequality, the agents' preferred tax rate on capital income varies with the level of wealth mobility.