Research

I show that corporate financial frictions affect not only the strength of monetary transmission, but also its distributional incidence. Following monetary tightening, weaker firm balance sheets and tighter external financing conditions amplify losses among households most reliant on current earnings and limited self-insurance. Labor-income exposure, rather than household leverage, is therefore the key distributional margin in this framework: corporate distress reaches households through firms’ demand for labor. This mechanism remains robust with household illiquid assets, which broaden transmission channels without displacing labor income as the dominant force. The financial accelerator raises welfare costs and concentrates additional losses among low-wealth households.

This paper studies why inflation inattention varies across households and over time, and how such variation shapes monetary transmission. We propose a behavioral mechanism, grounded in reference dependence and relative consumption, through which inflation inattention depends on the consumption gap between asset holders and non-asset holders. Consistent with this intuition, U.S. data suggest a negative reduced-form relationship between the consumption gap and inflation inattention. Motivated by this pattern, we develop a Two-Agent New Keynesian model with imperfect information in which asset holders endogenously reduce inattention when the consumption gap widens. The mechanism improves the accuracy of inflation expectations and inflation stabilization after cost-push shocks, but at the cost of a deeper contraction in real activity and lower welfare in inefficient steady states.

Monetary tightening does not have a single distributional effect: the dimension of inequality it amplifies depends on where credit frictions bind. I embed a firm financial accelerator and an endogenous household borrowing spread in a heterogeneous-agent economy and analyze them separately. For comparable output contractions, firm-side frictions generate the larger increase in wealth inequality, whereas household-side frictions produce a much larger rise in consumption inequality. The difference is concentrated around zero liquid wealth. When household borrowing costs stay fixed, income-poor households use debt to smooth the downturn, widening negative-wealth positions. When the borrowing spread rises, fewer households move into debt, but more remain hand-to-mouth and cut consumption persistently. A consumption decomposition shows that the borrowing spread becomes a quantitatively important direct transmission channel, while indirect effects remain substantial.