Research / BFI Working PaperMay 02, 2022

Monetary Policy, Redistribution, and Risk Premia

Rohan Kekre, Moritz Lenel

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.

More Research From These Scholars

BFI Working Paper Jan 12, 2023

The Macroeconomics of the Greek Depression

Rohan Kekre, Gabriel Chodorow-Reich, Loukas Karabarbounis
Topics:  Tax & Budget
BFI Working Paper Feb 20, 2020

Optimal Currency Areas with Labor Market Frictions

Rohan Kekre
Topics:  Uncategorized
BFI Working Paper Aug 31, 2022

Unemployment Insurance in Macroeconomic Stabilization

Rohan Kekre
Topics:  Employment & Wages