07.07.2021: Ludwig Straub – Exchange rates and monetary policy with heterogeneous agents: sizing up the real income channel

Presenter: Ludwig Straub
Affiliation: Department of Economics, Harvard University

Paper: Exchange Rates and Monetary Policy with Heterogeneous Agents: Sizing up the Real Income Channel

Date: July 7, 2021
Time: 15:00 IDT (GMT+3)

Abstract: Introducing heterogeneous households to a New-Keynesian small open economy model amplifies the real income channel of exchange rates: the rise in import prices from a depreciation lowers households’ real incomes, and leads them to cut back on spending. This channel counteracts the standard expenditure-switching channel of exchange rates, and can result in a contractionary effect of a depreciation on domestic output. We study the monetary policy implications of a large and dominant real income channel.

Coauthors: Adrien Auclert (Stanford University), Matthew Rognlie (Northwestern University), and Martin Souchier (Stanford University).

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