Heterogeneous households: Monopolistic capitalists, entrepreneurs and employees

Abstract

What are the implications of an uneven distribution of welfare on optimal stabilisation policy? I build a dynamic stochastic general equilibrium model with household heterogeneity in income and consumption with which to solve optimal fiscal and monetary policy over the business cycle. I include three types of household; capitalists, entrepreneurs and workers, and endogenise the selection process between the latter two. © Springer International Publishing Switzerland 2014.