Lunch Seminar: Moritz Lenel - Princeton University
2019-06-07 13:00 - 14:00 UTC
Redistribution, Risk Premia, and the Macroeconomy joint with Rohan Kekre

Abstract:

We study the effects of redistribution on risk premia and investment in a heterogeneous agent New Keynesian environment.� Heterogeneity in agents' marginal propensity to take risk (MPR) summarizes differences in risk aversion, constraints, rules of thumb, and background risk relevant for portfolio choice on the margin.� Shocks which redistribute to agents with high MPRs reduce risk premia and, absent a monetary policy tightening, raise investment.� We quantitatively evaluate the role of this mechanism for the transmission of conventional monetary policy in the U.S. economy.� An unexpected reduction in the nominal interest rate redistributes to agents with high MPRs and lowers the risk premium.� This rationalizes the relative roles of dividend growth, risk-free rates, and excess returns in generating an increase in the stock market and contributes substantially to the transmission of monetary policy through investment.
