Monetary policy and the redistribution of net worth in the U.S

ABSTRACT

This paper aims to study the distributive effects of monetary policy on wealth inequality in the US. Combining macro and micro data, we find that wealth inequality increases after an expansionary monetary policy shock, especially in the long run. Specifically, we find that an expansionary monetary policy shock substantially increases the net worth of the richest and the poorest households, while the middle class tends to benefit the least. A remarkable policy implication of our work is that, considering the post-pandemic situation, forthcoming monetary policy should be designed to avoid these unwanted effects on wealth inequality.

KEYWORDS:

• Monetary Policy
• wealth inequality
• proxy SVAR
• household survey

JEL CLASSIFICATION:

• E52
• E58
• E21
• D31

Acknowledgements

The authors thank the journal editor, the associate editors of the special issue and the anonymous reviewers for their suggestions and contributions. The authors also thank the Cañada Blanch Centre of the London School of Economics for allowing a research stay where this research was partially conducted.

Disclosure statement

No potential conflict of interest was reported by the authors.

Supplemental data

Supplemental data for this article can be accessed here.

Notes

1. In a robustness check we use other financial indicators for the interest variables and we find similar responses- i.e. Dow Jones index and Wilshire 5000 total market index for stock prices, S&P/Case-Shiller national home price index for home prices, and the Moody’s AAA and BAA index corporate bond and 3-month U.S. inter-bank rates as indicators of the interest rate. The results of the baseline model and the robustness checks are shown in the appendix B.

2. The results for the other time horizons (6, 12 and 30 months after the shock) simulations can be found in appendix D.

3. All the results and figures are exposed in the appendix D.

4. The wealth shares from World Inequality Database are only available up to 2014.

5. The tables with the results and further explanation can be found in Appendix E.

Additional information

Funding

Juan Francisco Albert is grateful for the financial support given by the Spanish Ministry of Science, Innovation and Universities (grant FPU16/04571).