Quantitative easing and median income: a state-level analysis

ABSTRACT

Due to the Great Recession, the Federal Reserve engaged in unconventional monetary policy (QE) to fight the effects of the economic downturn. Literature asserts that QE did have impacts on economic growth and helped alleviate the effects of the recession. Recently, critics have asserted that the benefits of QE may not have been equally distributed across households. In this paper, we build a state-level dataset to investigate the dynamics of QE measures and median income across the U.S states. The findings indicate that, for the period 2008 to 2014, there is statistical evidence that increases in the Federal Reserve’s balance sheet correspond with higher nominal median income. However, once we adjust for inflation, the results become statistically insignificant and the impact of QE on median income becomes almost zero.

KEYWORDS:

• Median income
• unconventional monetary policy
• macroeconomic policy

JEL CLASSIFICATION:

• D31
• E66
• E25

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ The data is available on request.

² The limited amount of data (7 years), does not allow us to extend the analysis to a longer horizon.

³ These findings are available upon request. Also, since Michigan and Indiana switched to non-right-to-work status in 2012, we treat them as right-to-work states. As a robustness test, we perform a separate analysis by treating them as non-right-to-work states. The results do not change.

⁴ These results are available upon request.

⁵ This is defined in the graph as compensation of employees.

⁶ Equity asset income is income received by owning equity assets. The most common example of equity asset income is dividends.

⁷ Median income for the income ranges ‘$ 25,000 to $ 34,999’ and ‘$ 75,000 and over’ are used as representatives for the median income households in the bottom 25% and in the upper 25% of the income distribution.

⁸ Results are available upon request.