Monetary policy shocks and their effects across the wealth distribution: evidence from new European data

Marco Moreno and Simone Cima

No tep0524, Economic Papers from Trinity College Dublin, Economics Department

Abstract: We use new data on the distribution of wealth in the euro area and employ panel local projections to estimate the different impact of ECB monetary policy shocks on households across the wealth distribution. We look at how policy affects the composition of their balance sheets, their investment decisions, and overall wealth inequality. We find that in response to a contractionary shock, poorer households display a substantial decline in their assets and a reduction in their debt. Conversely, the balance sheet of the very wealthiest shows the opposite evolution, ultimately leading to an increase in overall wealth inequality. Evidence also suggests that the investment behaviour of poorer and wealthier households differs in response to the shock. Our results further indicate that contractionary shocks lead to a shift in balance sheet composition towards housing assets across the whole wealth distribution, at the expense of financial assets.

Keywords: Wealth Inequality; Monetary Policy; Distributional Wealth Accounts; Local Projections (search for similar items in EconPapers)
JEL-codes: D31 E44 E52 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2024-08
New Economics Papers: this item is included in nep-cba, nep-eec, nep-eur and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:tcd:tcduee:tep0524

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