Working Paper: CEPR ID: DP15599
Authors: Jos Luis Peydr; Asger Lau Andersen; Niels Johannesen; Mia Jrgensen
Abstract: We analyze the distributional effects of monetary policy on income, wealth and consumption. We use administrative household-level data covering the entire population in Denmark over the period 1987-2014 and exploit a long-standing currency peg as a source of exogenous variation in monetary policy. We consistently find that the gains from softer monetary policy in terms of income, wealth and consumption are monotonically increasing in the ex ante income level. The distributional effects reflect systematic differences in exposure to the various channels of monetary policy, especially non-labor channels (e.g. leverage and assets). Our estimates imply that softer monetary policy increases incomeinequality by raising income shares at the top of the income distribution and reducing them at the bottom.
Keywords: Monetary Policy; Inequality; Household Heterogeneity; Assets; Leverage
JEL Codes: E2; E4; E5; G1; G2; G5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Softer monetary policy (E52) | Disposable income (D31) |
| Softer monetary policy (E52) | Income inequality (D31) |
| Softer monetary policy (E52) | Salary income (lower-income households) (J31) |
| Softer monetary policy (E52) | Business income and stock market income (higher-income households) (E25) |
| Decrease in policy rate (E52) | Asset values (G32) |
| Softer monetary policy (E52) | Disposable income (dynamic effects) (H31) |