Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/247418 
Year of Publication: 
2021
Series/Report no.: 
Bank of Canada Staff Working Paper No. 2021-38
Publisher: 
Bank of Canada, Ottawa
Abstract: 
We identify a sizable wealth redistribution channel which creates a monetary policy trade-off whereby short-term economic stimulus is followed by persistently lower output over the medium term. This trade-off is stronger in economies with more nominal household debt but weakened by a more aggressive monetary policy stance and under price-level targeting. Given this trade-off, low-for-long episodes can lead to persistently depressed output. The mediumterm implications of the wealth redistribution channel rely on the presence of labor supply heterogeneity, which we show both analytically and in the context of an estimated New Keynesian general equilibrium model with household heterogeneity.
Subjects: 
Monetary policy framework
Monetary policy transmission
JEL: 
E21
E50
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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