On the Distributional Effects of Conventional Monetary Policy and Forward Guidance

Giacomo Mangiante and Pascal Meichtry

Working papers from Banque de France

Abstract: This paper investigates the distributional effects of conventional monetary policy and forward guidance. Using a structural VAR model, we estimate their impact on macroeconomic aggregates and consumption inequality in the United States. While aggregate real and financial variables respond similarly to both policy tools, their effects on consumption inequality diverge significantly. Conventional monetary policy shocks lead to countercyclical inequality, whereas forward guidance announcements result in a procyclical response, driven by heterogeneous reactions across the household spending distribution. We rationalize these contrasting outcomes both empirically and through a tractable New Keynesian model featuring household heterogeneity and government redistribution. In the model, a fiscal adjustment that differs in timing and magnitude induces a sharper decline in consumption among financially constrained households following conventional rate hikes but a more muted effect under forward guidance. These findings highlight the importance of accounting for the distributional consequences of different monetary policy tools and emphasize the critical role of fiscal policy in shaping inequality dynamics.

Keywords: Household Heterogeneity; Forward Guidance; Inequality; Monetary Policy; Hand-to-Mouth; Fiscal Transfers (search for similar items in EconPapers)
JEL-codes: D31 E21 E52 E58 E62 (search for similar items in EconPapers)
Pages: 74 pages
Date: 2025
New Economics Papers: this item is included in nep-mac and nep-mon
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.banque-france.fr/system/files/2025-07/WP996_0.pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:996

Access Statistics for this paper

More papers in Working papers from Banque de France Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS. Contact information at EDIRC.
Bibliographic data for series maintained by Michael brassart ().