Econometrica

Journal Of The Econometric Society

An International Society for the Advancement of Economic
Theory in its Relation to Statistics and Mathematics

Edited by: Guido W. Imbens • Print ISSN: 0012-9682 • Online ISSN: 1468-0262

Econometrica: Sep, 2022, Volume 90, Issue 5

Monetary Policy, Redistribution, and Risk Premia

https://doi.org/10.3982/ECTA18014
p. 2249-2282

Rohan Kekre, Moritz Lenel

We study the transmission of monetary policy through risk premia in a heterogeneous agent New Keynesian environment. Heterogeneity in households' marginal propensity to take risk (MPR) summarizes differences in portfolio choice on the margin. An unexpected reduction in the nominal interest rate redistributes to households with high MPRs, lowering risk premia and amplifying the stimulus to the real economy. Quantitatively, this mechanism rationalizes the role of news about future excess returns in driving the stock market response to monetary policy shocks and amplifies their real effects by 1.3–1.4 times.


Full Content

Supplemental Material

Supplement to "Monetary Policy, Redistribution, and Risk Premia"

Rohan Kekre and Moritz Lenel

This online appendix contains proofs not found within the manuscript.

Supplement to "Monetary Policy, Redistribution, and Risk Premia"

Rohan Kekre and Moritz Lenel

This zip file contains the replication files for the manuscript.