Should Monetary Policy Reacts to Inequality
- Institute of Economics, Chinese Academy of Social Sciences,100836; Department of Economics, Party School of the Guangdong Provincial Committee of CPC, 510053.
From the perspective of heterogeneous skills, this paper considers a NK-DSGE model with consumption inequality and income inequality, and investigates the dynamic effects of exogenous shocks among different labor groups and inequality. The result shows that, the positive shocks of labor supply, technology change and monetary policy may deteriorate inequality. Then, we focus on the monetary policy design under the condition of inequality. And we find that: (1) compared to the Taylor rule not considering inequality, the simple rule considering inequality may partially damage growth; (2) compared to the simple rule considering unemployment, the simple rule considering inequality not only decreases the loss of output, but also alleviates inequality considerably; (3) compared to the policy mechanism not considering inequality, the social welfare loss may decrease significantly if the monetary authority considers inequality. Further, we compared the social welfare loss of alternative monetary policies. The result argues that, the social welfare of simple rules that consider income inequality is much lower than those considering consumption inequality. Therefore, the paper believes that, under the condition of significant inequality, the monetary authority should considering income inequality.
JEL：E52, J31, O23
- Heterogeneous Skills, Consumption Inequality, Income Inequality, Monetary Policy