Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/279220 
Year of Publication: 
2023
Series/Report no.: 
CESifo Working Paper No. 10471
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
This paper studies how household inequality shapes the effects of the zero lower bound (ZLB) on nominal interest rates on aggregate dynamics. To do so, we consider a heterogeneous agent New Keynesian (HANK) model with an occasionally binding ZLB and solve for its fully nonlinear stochastic equilibrium using a novel neural network algorithm. In this setting, changes in the monetary policy stance influence households' precautionary savings by altering the frequency of ZLB events. As a result, the model features monetary policy non-neutrality in the long run. The degree of long-run non-neutrality, i.e., by how much monetary policy shifts real rates in the ergodic distribution of the model, can be substantial when we combine low inflation targets and high levels of wealth inequality.
Subjects: 
heterogeneous agents
HANK models
neural networks
non-linear dynamics
JEL: 
D31
E12
E21
E31
E43
E52
E58
Document Type: 
Working Paper
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