Innocent Bystanders? Monetary Policy and Inequality in the U.S.
We study the effects and historical contribution of monetary policy shocks to consumption and income inequality in the United States since 1980. Contractionary monetary policy actions systematically increase inequality in labor earnings, total income, consumption and total expenditures. Furthermore, monetary shocks can account for a significant component of the historical cyclical variation in income and consumption inequality. Using detailed micro-level data on income and consumption, we document the different channels via which monetary policy shocks affect inequality, as well as how these channels depend on the nature of the change in monetary policy.
The authors acknowledge the financial support of the Global Interdependence Center and are grateful to Stefania Albanesi, Pierre Jaillet, Aysegul Sahin and seminar participants at the New York Fed and Global Interdependence Center Conference for comments. We thank Peter Ireland for sharing his data. The views in the paper are those of the authors and do not necessarily represent those of Wells Fargo. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
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