How Does Monetary Policy Affect Income and Wealth Inequality? Evidence from Quantitative Easing in the Euro Area

By M. Lenza, Jiří Slačálek. Social Science Research Network, 2018

139 citations recorded by the source corpus.

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 quantitative easing (QE) shock, identified by means of external instruments, in a multi‐country vector autoregression (VAR) model with unemployment, wages, gross operating surplus, 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 because 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.

View Paper: https://www.semanticscholar.org/paper/16d4b6ebe5e14aac42cacf1c77af766c9571fe26

Citations in the corpus

• CENTRAL BANK POLICIES AND INCOME AND WEALTH INEQUALITY: A SURVEY (2019, unknown): “Supporting evidence for this channel is found for the USA (Bivens, 2015), Italy (Casiraghi et al. , 2018), and the euro area (Guerello, 2018; Lenza and Slaˇc´alek, 2018).”