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Events of Department of Economics

March 18, 2021 at 16:30 - 17:45

Seminar (Joint with the BAFFI CAREFIN)


Exchange Rates and Monetary Policy with Heterogeneous Agents: Resurrecting the Real Income Channel

Matthew Rognlie (Northwestern University)


Abstract: Introducing heterogeneous households into a New-Keynesian small open economy model resurrects the real income channel of exchange rates: the rise in import prices from a depreciation lowers households’ real incomes, and leads them to cut back on spending. This channel counteracts the standard expenditure-switching channel of exchange rates, and can result in contractionary devaluations. We study the implications of the real income channel for monetary policy, and measure its magnitude in the data.

by invitation: for information or to receive the invitation link contact