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Cyclical Inequality in the Cost of Living and Implications for Monetary Policy

Ting Lan et al.

International Economic Review2026https://doi.org/10.1111/iere.70053article
AJG 4ABDC A*
Weight
0.50

Abstract

This paper documents that households with higher marginal propensities to consume (MPCs) consume goods with more flexible prices. Consequently, they face more cyclical and volatile inflation, and experience higher inflation following expansionary monetary policy shocks. We embed this MPC‐price stickiness relationship into a tractable multi‐sector two‐agent New Keynesian (TANK) model and show that it dampens monetary policy effectiveness by about 15% relative to a homogeneous‐basket benchmark. Introducing heterogeneous consumption baskets also generates an inefficient flexible‐price equilibrium, leading to a novel trade‐off between stabilization and redistribution, which alters the optimal monetary policy prescription.

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https://doi.org/https://doi.org/10.1111/iere.70053

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@article{ting2026,
  title        = {{Cyclical Inequality in the Cost of Living and Implications for Monetary Policy}},
  author       = {Ting Lan et al.},
  journal      = {International Economic Review},
  year         = {2026},
  doi          = {https://doi.org/https://doi.org/10.1111/iere.70053},
}

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Cyclical Inequality in the Cost of Living and Implications for Monetary Policy

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Evidence weight

0.50

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.50 × 0.4 = 0.20
M · momentum0.50 × 0.15 = 0.07
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

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