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Distributional Effects of Monetary Policy

Veronika Selezneva, Martin Schneider () and Matthias Doepke ()
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Veronika Selezneva: Northwestern University

No 1099, 2015 Meeting Papers from Society for Economic Dynamics

Abstract: We assess the distributional consequences of monetary policy in the current economic environment in the United States. Through its effect on inflation, monetary policy affects the real value of nominal assets and liabilities, and therefore redistributes wealth between borrowers and lenders in the economy. In addition, unconventional policies such as 'quantitative easing' affect real interest rates and the availability of credit, once again leading to redistributional effects. We first document the potential exposure to redistribution effects on the U.S. economy using recent data from the Flow of Funds accounts and the Survey of Consumer Finance. We then quantify the redistribution effects of monetary policy using a rich life-cycle model with idiosyncratic risk, financial constraints, a housing sector, and nominal borrowing and lending. We also discuss the extent to which the recent financial crisis, which has lowered net worth of many households and tightened financial constraints, has changed the nature of distributional consequences of monetary policy.

New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
Date: 2015
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