When Redistribution Becomes a State Variable: Monetary-Fiscal Stabilization with Type-Specific Sticky Wages (opens in new tab)

Many tractable TANK models treat redistribution as a contemporaneous wedge. I show that this view is incomplete once wage contracts are type-specific. In a tractable Two-Agent New Keynesian model, each household type adjusts its nominal wage relative to its own previous wage. This own-lag contract makes the cross-type wage gap a payoff-relevant distributional state variable. The wage gap follows a second-order expectational law of motion and fee...