Inequality, Business Cycles, and Monetary-Fiscal Policy

Anmol Bhandari, David Evans, Mikhail Golosov, Thomas J. Sargent

Research output: Contribution to journalArticlepeer-review

1 Scopus citations


We study optimal monetary and fiscal policies in a New Keynesian model with heterogeneous agents, incomplete markets, and nominal rigidities. Our approach uses small-noise expansions and Fréchet derivatives to approximate equilibria quickly and efficiently. Responses of optimal policies to aggregate shocks differ qualitatively from what they would be in a corresponding representative agent economy and are an order of magnitude larger. A motive to provide insurance that arises from heterogeneity and incomplete markets outweighs price stabilization motives.

Original languageEnglish (US)
Pages (from-to)2559-2599
Number of pages41
Issue number6
StatePublished - Nov 2021

Bibliographical note

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© 2021 The Econometric Society


  • fiscal policy
  • heterogeneity
  • monetary policy
  • Sticky prices


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