Empirical evidence
What is the empirical evidence on how monetary policy affects inequality? In order to answer this questions, Andersen et al. dig deep into individual-level tax records, with detailed information about income and balance sheets, for the entire population in Denmark for the period 1987-2014. More specifically, they collect more than 70 million individual-yearly observations on all major components of households’ disposable income (e.g. salaries, dividends and interest expenses) as well as the main balance sheet components (e.g. housing, stocks and debt).
Our results document a strong income gradient in the gains from expansionary monetary policy: while households at all income levels benefit from a lower policy rate in terms of disposable income, asset values, net wealth and durable consumption, households at higher income levels generally benefit more. The distributional effects reflect systematic differences across income groups in the exposure to the direct and indirect channels of monetary policy. The results suggest that monetary policy has a sizeable effect on inequality: lowering the policy rate by one percentage point increases the share of aggregate disposable income by around 3.5% for the top-1% and decreases it by almost 2% at the bottom of the income distribution.
Monetary Policy and Inequality
Authors: Asger Lau Andersen, Niels Johannesen, Mia Jørgensen, José-Luis Peydró
From: University of Copenhagen, Imperial College
