When Redistribution Becomes a State Variable: Monetary-Fiscal Stabilization with Type-Specific Sticky Wages
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| Format: | Preprint |
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2026
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| _version_ | 1866917499203747840 |
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| author | Miyazaki, Kenji |
| author_facet | Miyazaki, Kenji |
| contents | Many tractable TANK models treat redistribution as a contemporaneous wedge. I show that this view is incomplete once wage contracts are type-specific. In a tractable Two-Agent New Keynesian model, each household type adjusts its nominal wage relative to its own previous wage. This own-lag contract makes the cross-type wage gap a payoff-relevant distributional state variable. The wage gap follows a second-order expectational law of motion and feeds back into aggregate demand through consumption dispersion. Inflation stabilization or contemporaneous profit-wedge neutralization therefore generally fails to restore the corresponding representative-agent allocation. Under the maintained commitment benchmark, RANK-equivalent stabilization from period $t=1$ onward requires history-dependent transfers that respond to inherited wage dispersion, not only current profits. In the benchmark calibration, wage rigidity raises the peak output response to a transfer shock by a factor of 3.27, from $2.49\times 10^{-4}$ to $8.14\times 10^{-4}$. |
| format | Preprint |
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arxiv_https___arxiv_org_abs_2605_15614 |
| institution | arXiv |
| publishDate | 2026 |
| record_format | arxiv |
| spellingShingle | When Redistribution Becomes a State Variable: Monetary-Fiscal Stabilization with Type-Specific Sticky Wages Miyazaki, Kenji General Economics Economics Many tractable TANK models treat redistribution as a contemporaneous wedge. I show that this view is incomplete once wage contracts are type-specific. In a tractable Two-Agent New Keynesian model, each household type adjusts its nominal wage relative to its own previous wage. This own-lag contract makes the cross-type wage gap a payoff-relevant distributional state variable. The wage gap follows a second-order expectational law of motion and feeds back into aggregate demand through consumption dispersion. Inflation stabilization or contemporaneous profit-wedge neutralization therefore generally fails to restore the corresponding representative-agent allocation. Under the maintained commitment benchmark, RANK-equivalent stabilization from period $t=1$ onward requires history-dependent transfers that respond to inherited wage dispersion, not only current profits. In the benchmark calibration, wage rigidity raises the peak output response to a transfer shock by a factor of 3.27, from $2.49\times 10^{-4}$ to $8.14\times 10^{-4}$. |
| title | When Redistribution Becomes a State Variable: Monetary-Fiscal Stabilization with Type-Specific Sticky Wages |
| topic | General Economics Economics |
| url | https://arxiv.org/abs/2605.15614 |