DP16079 How Does Monetary Policy Affect Income and Wealth Inequality? Evidence from Quantitative Easing in the Euro Area
This paper evaluates the impact of quantitative easing on income and wealth of individual
euro area households. We first estimate the aggregate effects of a QE shock, identified by
means of external instruments, in a multi-country VAR model with unemployment, wages,
interest rates, house prices and stock prices. We then distribute the aggregate effects across
households using a reduced-form simulation on micro data, which captures the portfolio
composition, the income composition and the earnings heterogeneity channels of transmission.
The earnings heterogeneity channel is important: QE compresses the income distribution
since many households with lower incomes become employed. In contrast, monetary policy
has only negligible effects on the Gini coefficient for wealth: while high-wealth households
benefit from higher stock prices, middle-wealth households benefit from higher house prices.