This paper studies the transmission of monetary policy across households that hold heterogeneous portfolios. I derive a sufficient statistics decomposition of the consumption effect of monetary policy that accounts for household-level holdings of assets and liabilities that are differentially exposed to monetary shocks. In this framework, the joint distribution of household portfolio exposures, marginal propensities to consume (MPCs), and changes in asset prices in response to the shock determine the magnitude and distribution of monetary policy transmission. I estimate this decomposition using U.S. data on household balance sheets, MPCs, and asset prices. I find that equity revaluation is a key transmission channel as equity prices respond strongly to monetary shocks. Because equity ownership is concentrated among richer households, expansionary monetary policy generates substantial wealth gains at the top of the wealth distribution. These gains lead high-wealth households to account for a large share of the aggregate consumption response despite their lower MPCs. To assess whether quantitative models capture this distributional pattern, I compare a benchmark two-asset heterogeneous agent New Keynesian model with a parsimonious extension calibrated to moments from the wealth distribution and the equity price response to monetary shocks. The extended model more closely matches the concentration of wealth gains and consumption responses at the top of the wealth distribution.

Environmental policy often relies on pricing ‘brown’ externality-producing goods to internalize damages. This principle follows a classic result in the Pigouvian taxation literature which argues that directly taxing the externality is optimal. This paper reexamines optimal Pigouvian taxation in light of income dynamics, financing constraints, and a fixed cost of switching between a brown good and a substitutable ‘green’ good. We show that subsidizing the substitutable green good may be optimal in conjunction with, or instead of, taxing the brown good. A brown tax can only induce switching to the green good for households that can already finance the fixed cost, while a green subsidy expands the extensive margin by making adoption feasible. We test these predictions using evidence from electric vehicle subsidies in California. ZIP codes with lower credit scores exhibit larger responses to the incentive payment, consistent with our theory that borrowing constraints can affect adoption decisions. Quantitatively, we find that a subsidy can increase the share of individuals who can afford to switch to the green technology, leading to higher welfare while achieving a given adoption target.