Monetary Policy and the Dynamics of Wealth Inequality


I provide new evidence that monetary policy plays a significant role in driving persistent wealth inequality in the United States. Using local projections with the Distributional Financial Accounts and high-frequency identification, I find that contractionary monetary policy disproportionately reduces the net worth of the bottom 50% of households by wealth. Heterogeneous portfolios explain the disparity of responses: the top 1% of households suffer from reduced equity prices while the bottom 50% suffer from leveraged house price declines. I show that monetary contractions generate larger net worth responses than monetary easings of similar magnitude, driving persistent wealth gaps.

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Ethan Feilich
Ethan Feilich

Economist in the Office of Economic Policy at the U.S. Department of the Treasury