Price Level and Inflation Dynamics in Heterogeneous Agent Economies
< p>Abstract:We study steady-state and dy namic equilibria in heterogeneous agent economies with nominal government d ebt and flexible prices. When governments run a surplus, conditions for pri ce level and inflation determination mirror analogous representative agent economies. However, the quantitative effects differ because of movements in the real interest rate that arise from redistribution of real wealth. When governments run a deficit, steady state equilibria exist with heterogeneou s agents -- unlike in a representative agent economy -- provided that the l evel of deficits is not too large. In these economies the real interest rat e is below the growth rate of the economy. With fixed deficits, there are t wo steady-state equilibria of the real economy and multiple dynamic equilib ria. In general, the price level and inflation are not uniquely determined. We describe fiscal and monetary policy rules that deliver uniqueness. We u se the framework to illustrate how redistribution amplifies price level inc reases in response to fiscal helicopter drops, deficit expansions, lo ose monetary policy and negative productivity shocks.
DTSTAMP:20260606T231443Z DTSTART:20230620T010000Z DTEND:20230620T140000Z SEQUENCE:0 TRANSP:OPAQUE END:VEVENT END:VCALENDAR