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How Does Monetary Policy Affect Income and Wealth Inequality? Evidence from Quantitative Easing in the Euro Area

Michele Lenza () and Jiri Slacalek ()

No 16079, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper evaluates the impact of quantitative easing on income and wealth of individual euro area households. We first estimate the aggregate effects of a QE shock, identified by means of external instruments, in a multi-country VAR model with unemployment, wages, interest rates, house prices and stock prices. We then distribute the aggregate effects across households using a reduced-form simulation on micro data, which captures the portfolio composition, the income composition and the earnings heterogeneity channels of transmission. The earnings heterogeneity channel is important: QE compresses the income distribution since many households with lower incomes become employed. In contrast, monetary policy has only negligible effects on the Gini coefficient for wealth: while high-wealth households benefit from higher stock prices, middle-wealth households benefit from higher house prices.

Keywords: Household heterogeneity; Income; Inequality; monetary policy; Quantitative easing; wealth (search for similar items in EconPapers)
JEL-codes: D14 D31 E44 E52 E58 (search for similar items in EconPapers)
Date: 2021-04
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Working Paper: How does monetary policy affect income and wealth inequality? Evidence from quantitative easing in the euro area (2018) Downloads
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