Citation

Discussion Paper Details

Please find the details for DP15599 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Monetary Policy and Inequality

Author(s): Asger Lau Andersen, Niels Johannesen, Mia Jørgensen and José Luis Peydró

Publication Date: December 2020

Keyword(s):

Programme Area(s): Financial Economics, Monetary Economics and Fluctuations and Public Economics

Abstract: We analyze the distributional effects of monetary policy on income, wealth and consumption. For identification, we exploit administrative household-level data covering the entire population in Denmark over the period 1987-2014, including detailed information about income and wealth from tax returns, in conjunction with exogenous variation in the Danish monetary policy rate created by a long-standing currency peg. Our results consistently show that all income groups gain from a softer monetary policy, but that the gains are monotonically increasing in the ex-ante income level. Over a two-year horizon, a decrease in the policy rate of one percentage point raises disposable income by less than 0.5% at the bottom of the income distribution, by around 1.5% at the median income and by around 5% at the top. The effects on asset values through increases in house prices and stock prices are larger than the effects on disposable income by more than an order of magnitude and exhibit a similar monotonic income gradient. We show how all these distributional effects reflect systematic differences in the exposure to the direct and indirect channels of monetary policy. Consistent with the main results for disposable income and asset values, we also find that the effects on net wealth and consumption (car purchases) increase monotonically over the ex-ante income distribution. Our estimates imply that softer monetary policy increases income inequality by raising income shares at the top of the income distribution and reducing them at the bottom.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=15599

Bibliographic Reference

Andersen, A, Johannesen, N, Jørgensen, M and Peydró, J. 2020. 'Monetary Policy and Inequality'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=15599