Alexander Matusche

We study the role of entrepreneurs for the transmission of monetary policy to aggregate investment. To this end, we develop a HANK model with entrepreneurs who invest in private firms with risky returns. The model matches the distribution of private business returns over owners’ net worth observed in the Survey of Consumer Finances. This is important because a lower return premium over the risk-free rate leads to stronger portfolio rebalancing towards the private business in response to expansionary monetary policy. Entrepreneurs are quantitatively important for the transmission of monetary policy. If they do not react to the change in the interest rate, the output response is more than 30% smaller. A shift of wealth from workers to entrepreneurs as observed in the US since the 1980s, strengthens the real effects of monetary policy.

We provide evidence that higher wealth inequality between households is associated with stronger real effects of monetary policy. First, we use state-dependent local projections to show that the US and the UK exhibited stronger real effects of monetary policy in times of higher wealth inequality. Second, we measure wealth inequality within US states and document that economic activity responds more strongly to interest rate changes in states where wealth is distributed more unequally. Third, we show that ECB monetary policy has stronger real effects in Euro Area countries with higher wealth inequality.

I study the stimulus effects of a permanent expansion of public in- vestment that improves long-run productivity. Through an anticipation effect on labor demand, the policy change raises employment already in the short-run. In a model with search and matching labor market, I characterize the employment multiplier of public in- vestment analytically and show that it is larger in a recession than a boom. Calibrated to the US, the model yields an increase in employment of 0.4 percentage points one year after a permanent expansion of public investment by 1% of GDP. The anticipation effect accounts for 65% of the employment gain.