Monetary Policy, Redistribution, and Risk Premia

Rohan Kekre, Moritz Lenel

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

Abstract

We study the transmission of monetary policy through risk premia in a heterogeneous agent New Keynesian environment. Heterogeneity in households' marginal propensity to take risk (MPR) summarizes differences in portfolio choice on the margin. An unexpected reduction in the nominal interest rate redistributes to households with high MPRs, lowering risk premia and amplifying the stimulus to the real economy. Quantitatively, this mechanism rationalizes the role of news about future excess returns in driving the stock market response to monetary policy shocks and amplifies their real effects by 1.3–1.4 times.

Original languageEnglish (US)
Pages (from-to)2249-2282
Number of pages34
JournalEconometrica
Volume90
Issue number5
DOIs
StatePublished - Sep 2022

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Keywords

  • heterogeneous agents
  • Monetary policy
  • risk premia

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