The redistributive power of business cycle fluctuations

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Authors: Marcin Bielecki, Michał Brzoza‐Brzezina, Marcin Kolasa
Cited by: 1

Abstract

How do business cycles redistribute between generations, what are the redistribution channels and what role is played by monetary policy? We construct a New-Keynesian life-cycle model and estimate it for the United States. Business cycles redistribute significantly: fluctuations impact welfare of some cohorts by an equivalent of 30% of annual consumption. These first-order effects do not net out over a typical life cycle: some cohorts have been much less lucky than others. Life cycle aspects also amplify second-order costs of fluctuations. Monetary policy shocks are highly redistributive and, hence play an over-proportional role in driving redistribution: they are responsible for over 20% of its total amount. Systematic monetary policy has a quantitatively significant impact on redistribution as well: policy that responds strongly to inflation and output can substantially increase intergenerational redistribution.

Publication details

Publisher
SGH Warsaw School of Economics, Collegium of Economic Analysis
Publication date
1 February 2026