Monetary Policy and Inequality

Alisdair McKay and Christian Wolf

Journal of Economic Perspectives, 2023, vol. 37, issue 1, 121-44

Abstract: We ask three questions about the connection between monetary policy and inequality. First, does monetary policy affect inequality? While different households respond to changes in monetary policy for different reasons, we argue that the overall consumption effects are relatively evenly distributed across households. Second, does household heterogeneity change our understanding of monetary policy transmission? A more careful account of microeconomic consumption behavior materially alters our understanding of transmission channels, but has rather limited effect on our general view of the aggregate effects of monetary policy. Third, does inequality affect the optimal conduct of monetary policy? Since monetary policy is a rather blunt distributional tool, we argue that even a central bank with an explicit distributional mandate would not deviate much from conventional policy prescriptions.

JEL-codes: D31 E21 E24 E31 E43 E52 G51 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (22)

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DOI: 10.1257/jep.37.1.121

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