Inequality, Business Cycles, and Monetary-Fiscal Policy

Anmol Bhandari, David Evans, Mikhail Golosov, Thomas J. Sargent

    Research output: Contribution to journalArticlepeer-review


    We study optimal monetary and fiscal policies in a New Keynesian model with heterogeneous agents, incomplete markets, and nominal rigidities. Our approach uses small-noise expansions and Fréchet derivatives to approximate equilibria quickly and efficiently. Responses of optimal policies to aggregate shocks differ qualitatively from what they would be in a corresponding representative agent economy and are an order of magnitude larger. A motive to provide insurance that arises from heterogeneity and incomplete markets outweighs price stabilization motives.

    Original languageEnglish (US)
    Pages (from-to)2559-2599
    Number of pages41
    Issue number6
    StatePublished - Nov 2021


    • Sticky prices
    • fiscal policy
    • heterogeneity
    • monetary policy

    ASJC Scopus subject areas

    • Economics and Econometrics


    Dive into the research topics of 'Inequality, Business Cycles, and Monetary-Fiscal Policy'. Together they form a unique fingerprint.

    Cite this