Monetary Policy and Inequality

Abstract

This Commentary examines the link between monetary policy and income and wealth inequality by reviewing the theoretical channels that have been proposed and examining the empirical evidence on their importance. The analysis suggests that the magnitude of any redistributive consequences of conventional monetary policy seems to be small. Evidence that unconventional monetary policies have led to increases in inequality is still inconclusive.

Central Bank Policies and Income and Wealth Inequality: A Survey

“…Heathcote et al . () show that while earnings at the top of the distribution are mainly affected by changes in hourly wages, earnings at the bottom are mainly affected by changes in hours worked and the unemployment rate (Amaral, ). To the extent that monetary policy influences these forces differently it will produce redistributive income effects.…”

“…They find that an unexpected expansionary monetary policy shock increases earnings inequality by lowering the labor share of income for low‐skilled workers and raising it for high‐skilled workers. Income Composition Channel . Households acquire their incomes from different sources, each of which may respond differently to changes in monetary policy (Amaral, ). Low‐income households tend to rely more on transfers, while middle‐income households mainly rely on labor income and those at the upper tail of the income distribution rely relatively more on business and capital income.…”

A BSP closer to the people: spreading the benefits of monetary and financial stability

“…2 For instance, Heterogenous Agents New Keynesian (HANK) models argue that monetary policy can affect households differently, and thus have a distributional effect due to the heterogeneity in households in terms of composition of net asset portfolios, income and consumption preferences and sources of incomes, among others. So far, an examination of the literature and the evidence seems to suggest that monetary policy's contribution to inequality appears be a modest influence at best [Amaral 2017].…”

Monetary policy and wealth inequality in South Africa: Evidence from tax administrative data

“…This implies that the best way that monetary policy can contribute to social welfare is by promoting aggregate economic stability, which is also likely to be beneficial from an inequality perspective (Doladoet al 2018). Despite this, the relationship between monetary policy and inequality has been recently analysed (Albert and Gómez-Fernández 2018;Amaral 2017;Ampudia et al 2018;Aye et al 2019;Bullard 2014;Coibion et al, 2017;Dolado et al 2018;Gornemann et al 2016;Saiki and Frost 2014).…”