Monetary Policy across the Wealth Distribution

Abstract

Using vector autoregression and the Distributional Financial Accounts of the United States, we show that monetary policy has unequal effects across the wealth distribution. The direction and persistence of these effects depend on the policy instrument and the wealth group. Interest rate cuts initially reduce wealth inequality but increase it in the medium run. Asset purchases, instead, increase wealth inequality but only temporarily. Housing is the main channel through which monetary policy affects wealth at the bottom. The effects of monetary policy on capital gains are larger at the top due to heterogeneous portfolios. (Stone Center on Socio-Economic Inequality Working Paper)

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