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How Institutions Shape the Distributive Impact of Macroeconomic Shocks
A DSGE Analysis
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- Rudiger Ahrend1, Charlotte Moeser1, Tommaso Monacelli
- Author Affiliations
- 1: OECD, France
- 21 jui 2011
- Bibliographic information
This paper examines how the the distributive impact of macroeconomic shocks is shaped by selected institutions. It uses a dynamic stochastic general equilibrium (DSGE) framework with heterogeneous agents and an endogenous collateral constraint. The model is based on the "credit view" of business cycles, where shocks affect the real economy also via their impact on the borrowing capacity of economic agents. In this framework a positive shock to credit spreads, as seen in the recent crisis, redistributes from capital to labour as well as from from equity to bond holders. In contrast, both productivity and inflation shocks redistribute towards capital or equity holders. Distributive impacts are shown to be shaped by institutions. More sophisticated financial markets are found to amplify the redistributive impact of shocks, whereas more flexible wages, a more elastic labour supply, and a more reactive central bank are found to dampen it.
- DSGE, institutions, shocks, income distribution, credit frictions, heterogeneous agents
- Classification JEL:
- D31: Microeconomics / Distribution / Personal Income, Wealth, and Their Distributions
- D58: Microeconomics / General Equilibrium and Disequilibrium / Computable and Other Applied General Equilibrium Models
- E21: Macroeconomics and Monetary Economics / Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy / Consumption; Saving; Wealth
- E44: Macroeconomics and Monetary Economics / Money and Interest Rates / Financial Markets and the Macroeconomy