Universität zu Köln

Loenser, Christian and Schabert, Andreas ORCID: 0000-0002-4924-9937 (2020). MONETARY POLICY, FINANCIAL CONSTRAINTS, AND REDISTRIBUTION. International Economic Review, 61 (4). 1501 - 1529. HOBOKEN: Wiley. ISSN 1468-2354

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Abstract

This article examines how financial constraints affect redistribution via monetary policy. We explore a novel mechanism of monetary nonneutrality, which is based on debt limits imposed in nominal terms. Specifically, when debt is constrained by current income, monetary policy can alter the real terms of borrowing. Changes in inflation exert ambiguous effects, depending on the initial debt/wealth position and the willingness to borrow. We show analytically that borrowers can benefit from increased debt limits under lower inflation rates. This novel effect can dominate conventional debt deflation effects. We find that particularly less indebted borrowers as well as potential future borrowers gain and that aggregate welfare can be enhanced under a permanent reduction in inflation.

Item Type:	Journal Article
Creators:	Creators Email ORCID ORCID Put Code Loenser, Christian UNSPECIFIED UNSPECIFIED UNSPECIFIED Schabert, Andreas UNSPECIFIED orcid.org/0000-0002-4924-9937 UNSPECIFIED
URN:	urn:nbn:de:hbz:38-329270
DOI:	10.1111/iere.12468
Journal or Publication Title:	International Economic Review
Volume:	61
Number:	4
Page Range:	1501 - 1529
Date:	2020
Publisher:	Wiley
Place of Publication:	HOBOKEN
ISSN:	1468-2354
Language:	English
Faculty:	Central Institutions / Interdisciplinary Research Centers
Divisions:	Weitere Institute, Arbeits- und Forschungsgruppen > Center for Macroeconomic Research (CMR)
Subjects:	Economics
Uncontrolled Keywords:	Keywords Language UNITED-STATES; MARKETS; CREDIT; RISK Multiple languages Economics Multiple languages
Refereed:	Yes
URI:	http://kups.ub.uni-koeln.de/id/eprint/32927