SMU SOE Seminar Series (March 18, 2024): Optimal Monetary Policy during a Cost-of-Living Crisis

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ABSTRACT How should monetary policy react to sectoral shocks in a world where consumption baskets vary across households? We present a multi-sector New-Keynesian model with generalized, non-homothetic preferences and inequality. While being tractable, the model can be directly linked to micro data. Two novel wedges appear in the New Keynesian Phillips Curve (NKPC) and the output gap is governed by a Marginal Consumer Price Index (MCPI), rather than the regular CPI. A negative productivity shock in necessity sectors shifts the NKPC upward, increasing CPI inflation and decreasing the output gap. We find that the optimal policy response is relatively accommodative. Keywords: Sectoral shocks, Non-homothetic Preferences, Inequality, HANK, Optimal Policy. JEL Codes: E21, E25, E31, E52. Click here to view the CV. Click here to view the paper.
		PRESENTER Vincent Sterk University College London
		RESEARCH FIELD Macroeconomics
		DATE: 18 March 2024 (Monday)
		TIME: 4pm - 5.30pm
		VENUE: Meeting Room 5.1, Level 5 School of Economics Singapore Management University 90 Stamford Road Singapore 178903

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