Monetary Policy and Racial Inequality

Abstract

This paper aims at an improved understanding of the relationship between monetary policy and racial inequality. We investigate the distributional effects of monetary policy in a unified framework, linking monetary policy shocks both to earnings and wealth differentials between black and white households. Specifically, we show that, although a more accommodative monetary policy increases employment of black households more than white households, the overall effects are small. At the same time, an accommodative monetary policy shock exacerbates the wealth difference between black and white households, because black households own less financial assets that appreciate in value. Over multi-year time horizons, the employment effects are substantially smaller than the countervailing portfolio effects. We conclude that there is little reason to think that accommodative monetary policy plays a significant role in reducing racial inequities in the way often discussed. On the contrary, it may well accentuate inequalities for extended periods.

Wealth Inequality and Return Heterogeneity During the COVID-19 Pandemic

“…Our analysis also contributes to the recent discussion on racial disparities in wealth and their policy implications (Bartscher et al (2021); Ganong et al (2020); Boerma and Karabarbounis (2021); Gerardi et al (2020)). We show that the racial return gap has widened compared to the pre-pandemic level and that differences in the wealth returns across racial groups reflect differences in wealth.…”

“…In the 2019 SCF data, the median (mean) wealth of black households is $20,730 ($139,800), in sharp contrast to that of white households, $181,400 ($951,350). 18 Understanding the causes of these disparities is important for evaluating fiscal and monetary policies that intend to reduce the racial wealth gap (Bartscher et al (2021); Boerma and Karabarbounis (2021); Kermani and Wong (2021); Gerardi et al…”

“…Second, policies aiming to address income inequality in the short run may have unintended effects on wealth inequality. Low interest rates, for example, help raise the employment and income of disadvantaged workers, but may amplify wealth inequality by inflating asset prices (Bartscher et al (2021)). Third, even transitory shocks can have persistent effects on wealth inequality because wealth is a slowly moving variable that accumulates the effects of past shocks (Bayer et al (2020)).…”

Diverse Policy Committees Can Reach Underrepresented Groups

“…The existing literature has focused on how different pieces of information affect beliefs; we instead focus on how the same information affects beliefs differently depending on who communicates it. In this realm, we contribute to recent attempts to understand the effects of monetary policy communication on households' beliefs (see, for instance, Blinder et al, 2008;Haldane and McMahon, 2018;D'Acunto et al, 2020;D'Acunto et al, 2021b) as well as the heterogeneous effects of monetary policy across racial groups (see, for instance, Bartscher et al, 2021;Bergman et al, 2020;Gerardi et al, 2020).…”

Diverse Policy Committees Can Reach Underrepresented Groups

“…The existing literature has focused on how different pieces of information affect beliefs; we instead focus on how the same information affects beliefs differently depending on who communicates it. In this realm, we contribute to recent attempts to understand the effects of monetary policy communication on households' beliefs (see, for instance, Blinder et al, 2008;Haldane and McMahon, 2018;D'Acunto et al, 2020;D'Acunto et al, 2021b) as well as the heterogeneous effects of monetary policy across racial groups (see, for instance, Bartscher et al, 2021;Bergman et al, 2020;Gerardi et al, 2020).…”