Unconventional Monetary Policies and Inequality

Donggyu Lee

No 1108, Staff Reports from Federal Reserve Bank of New York

Abstract: This paper examines the aggregate and distributional effects of the Federal Reserve’s unconventional monetary policy, comprising quantitative easing and forward guidance, during the 2009–2015 effective lower bound episode, using an estimated medium-scale heterogeneous agent New Keynesian model. Relative to a counterfactual without unconventional policy, these interventions stimulate aggregate activity and generate broad-based welfare gains, with an average gain equivalent to a 0.27 percent increase in lifetime consumption. These welfare gains are mildly U-shaped across the wealth distribution, with households at the bottom gaining mainly from a lower unemployment rate, while higher profits and equity prices benefit the top disproportionately. Comparing these outcomes to an unconstrained conventional interest rate rule, I find that once unconventional tools are available the effective lower bound is not very costly in aggregate terms, while conventional policy alone would have implied somewhat more uneven distributional effects.

Keywords: unconventional monetary policy; inequality; Heterogeneous-agent New Keynesian (HANK) model; quantitative easing; Bayesian estimation; zero lower bound (search for similar items in EconPapers)
JEL-codes: E12 E30 E52 E58 (search for similar items in EconPapers)
Pages: 101
Date: 2024-07-01
New Economics Papers: this item is included in nep-cba, nep-dge, nep-fdg and nep-mon
Note: Revised October 2026. Previous title: “Quantitative Easing and Inequality.”
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fednsr:98524

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DOI: 10.59576/sr.1108

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