The Role of Rents in Transmission of Monetary Policy to Inequality : Evidence from a THRANK Model

This article construct a three different types of representative agents New Keynesian (THRANK) model includes housing rental market to explain the transmission of monetary policy to inequality, as well as explore the role that rents play in. The concept of rent rigidity is introduced in model. In addition, the model adds the rental inflation found through OLS regressions to the Taylor rule for study its effect on the economy. It is found that: 1. Tight monetary policy widens income inequality and asset inequality. Among the main triggers that magnify income inequality are the interest income generated by higher interest rates and the profit income generated by firms under the markup surge. 2. Sticky rents can stabilize total social inflation, making non-HtM more inclined to lease out housing instead of owner-occupied, while stimulating producers to increase their housing inputs in production. 3. When the monetary authority employ the Taylor rule which includes the rental inflation for setting interest rates, deepens the response of poor-HtM and firms to rental housing in the face of shock