Asset purchases, limited asset markets participation and inequality

Stylianos Tsiaras

Journal of Economic Dynamics and Control, 2023, vol. 154, issue C

Abstract: This paper analyses the effects of quantitative easing (QE) on households' income and consumption inequality in the Euro Area. Using a SVAR with high frequency identification, I show that an identified QE shock is redistributive and expansionary. To rationalize the empirical findings, I build a New Keynesian DSGE model with household heterogeneity and financial frictions which explains the empirical results and provides insights on the inequality channel. Bond purchases increase aggregate demand and benefit financially restricted households more than investors, due to the dominance of QE's indirect effects and the foregoing term spread between bonds and reserves. Thus, income and consumption inequality decline in line with the evidence.

Keywords: Quantitative easing; Inequality; Financial participation; Heterogeneity; DSGE; SVAR; External instrument (search for similar items in EconPapers)
JEL-codes: E44 E52 E58 E61 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:154:y:2023:i:c:s0165188923001276

DOI: 10.1016/j.jedc.2023.104721

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