WORKING PAPERS / WORK IN PROGRESS 


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Abstract: Analyzing redistribution from monetary policy changes demands close attention to economies where traditional agriculture with volatile output prices employs a substantial share of the working population and a major proportion of households live hand-to-mouth with a high marginal propensity to consume. This paper quantifies redistribution using a Heterogeneous Agent New Keynesian model tailored to fit these particularities with a prototypical case for the Indian economy. It offers new insights into monetary policy transmission and challenges the preconceptions about its impact that are predominantly explored in advanced economy contexts. The overall consumption responses to a policy expansion of 0.5% point quarterly and 1% point yearly vary between 1.26% − 2.80% and 3.96% − 8.46%, higher than what is observed in the US, major European economies, and the Euro-area averages. It also argues that households engaged in agricultural activities respond weakly to policy intervention.


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Abstract: A change in the conventional monetary policy transmits to consumer prices and returns on financial assets, leading to a series of general equilibrium effects on household income and consumption. This paper, for the first time, quantifies these effects using compensating variation estimated from numerous household surveys in India. Various data limitations motivate the use of machine learning techniques for out of sample predictions, thus paving the way toward utilizing these tools for more comprehensive and granular level policy analysis. A 100 basis point contractionary monetary policy intervention leads to an average welfare effect of Rs. 606.51 in rural households and Rs. 3772.81 in urban households, which vary substantially over different sources of heterogeneity and different channels of transmission. While below poverty line households are majorly affected by the labor income channels, rich households experience welfare effects contingent on their financial asset portfolios. Commodity price channels are relatively weaker and muted in richer households.


Abstract: The Reserve Bank of India kept the monetary policy rate persistently low and unrevised between May 2020 and April 2022 to encourage economic activity in battling the COVID-19 pandemic shock. In this paper, I argue that this stance by the central bank, in contrast to the conventional flexible inflation targeting, is beneficial for the economy, especially in the recovery periods. I find that economic activity through increased capital demand and output by heterogeneous firms led to a slightly higher share of formal employment, hence a reduced share of informal labor. The differences in the magnitude of responses under the lower for longer stance versus the flexible inflation targeting are highest among firms with less volatile beliefs. Households, on the other hand, react quite similarly. Among heterogeneous households, households with formal employment are least impacted by the pandemic shocks and they respond first to the lower rate. 



Abstract: This study investigates how extreme inequality influences economic growth through demand composition and sectoral differences in production. Drawing on household and firm level data, we document pronounced segmentation in consumption: poorer households devote substantially larger shares of their budgets to informal, relatively low quality mass produced goods, while richer households allocate more to formal and labor intensive high quality goods. These findings build the foundation of a simplistic model featuring non-homothetic preference and dual production structures, aimed to replicate the stylised facts from data, to examine how redistribution will shift economic growth. This paper contributes an integrated theoretical empirical account of the inequality growth dynamics in demand constrained, structurally heterogeneous economies.