Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Monetary transmission with income risk*

Monetary transmission with income risk* 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 one‐third. 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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Scandinavian Journal of Economics Wiley

Monetary transmission with income risk*

The Scandinavian Journal of Economics , Volume 125 (2) – Apr 1, 2023

Loading next page...
 
/lp/wiley/monetary-transmission-with-income-risk-Q8dKIbiQjr

References (1)

Publisher
Wiley
Copyright
© 2023 The editors of The Scandinavian Journal of Economics.
ISSN
0347-0520
eISSN
1467-9442
DOI
10.1111/sjoe.12516
Publisher site
See Article on Publisher Site

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 one‐third. 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.

Journal

The Scandinavian Journal of EconomicsWiley

Published: Apr 1, 2023

Keywords: Income risk; monetary policy

There are no references for this article.