Journal of Economic Perspectives
ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)
Monetary Policy and Inequality
Journal of Economic Perspectives
vol. 37,
no. 1, Winter 2023
(pp. 121–44)
(Complimentary)
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.Citation
McKay, Alisdair, and Christian K. Wolf. 2023. "Monetary Policy and Inequality." Journal of Economic Perspectives, 37 (1): 121–44. DOI: 10.1257/jep.37.1.121Additional Materials
JEL Classification
- D31 Personal Income, Wealth, and Their Distributions
- E21 Macroeconomics: Consumption; Saving; Wealth
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
- E31 Price Level; Inflation; Deflation
- E43 Interest Rates: Determination, Term Structure, and Effects
- E52 Monetary Policy
- G51 Household Finance: Household Saving, Borrowing, Debt, and Wealth
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