Working Paper: CEPR ID: DP16079
Authors: Michele Lenza; Jirka Slacalek
Abstract: This paper evaluates the impact of quantitative easing on income and wealth of individualeuro area households. We first estimate the aggregate effects of a QE shock, identified bymeans 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 acrosshouseholds using a reduced-form simulation on micro data, which captures the portfoliocomposition, the income composition and the earnings heterogeneity channels of transmission.The earnings heterogeneity channel is important: QE compresses the income distributionsince many households with lower incomes become employed. In contrast, monetary policyhas only negligible effects on the Gini coefficient for wealth: while high-wealth householdsbenefit from higher stock prices, middle-wealth households benefit from higher house prices.
Keywords: Monetary Policy; Household Heterogeneity; Inequality; Income; Wealth; Quantitative Easing
JEL Codes: D14; D31; E44; E52; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| QE (E01) | income distribution (D31) |
| QE (E01) | lower-income households' employment (J68) |
| QE (E01) | income inequality (D31) |
| QE (E01) | wealth inequality (D31) |
| stock prices (G12) | high-wealth households (G51) |
| housing wealth effects (G59) | mid and low-wealth households (R20) |