Research

I study the aggregate and distributional effects of monetary policy when households face idiosyncratic return risk, and make levered investments. When high-return households make levered investments, a decrease in the policy rate redistributes assets towards these wealthier households. This redistributive channel causes monetary policy shocks to increase both aggregate Total Factor Productivity and wealth inequality, as they do in the data. The endogenous change in productivity amplifies the effect of the shock and flattens the Phillips curve, implying that the overall effect of a change in monetary 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: monetary policy has small effects on output at low and high values of inequality, and larger effects for intermediate wealth inequality. Calibrating my model to the data suggests that the increase in wealth inequality from 1970-2022 can account for some of 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.