Hank model reveals monetary non-neutrality

Inequality and zero lower bound suggest monetary policy can impact long-term real rates

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Modelling an economy with heterogeneous agents and episodes of a binding zero lower bound (ZLB) can lead to deviations from the standard assumption of monetary neutrality, new research finds.

Typically, monetary policy is assumed not to impact the long-run equilibrium of the economy, only to correct short-term deviations. But the working paper, published by the National Bureau of Economic Research, implies policy decisions and frameworks can have a lasting impact on the real economy.


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