Working Paper: NBER ID: w18170
Authors: Olivier Coibion; Yuriy Gorodnichenko; Lorenz Kueng; John Silvia
Abstract: We study the effects and historical contribution of monetary policy shocks to consumption and income inequality in the United States since 1980. Contractionary monetary policy actions systematically increase inequality in labor earnings, total income, consumption and total expenditures. Furthermore, monetary shocks can account for a significant component of the historical cyclical variation in income and consumption inequality. Using detailed micro-level data on income and consumption, we document the different channels via which monetary policy shocks affect inequality, as well as how these channels depend on the nature of the change in monetary policy.
Keywords: Monetary Policy; Inequality; Consumption; Income
JEL Codes: E21; E24; E25; E44
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Contractionary monetary policy actions (E52) | Increase in inequality in labor earnings (J70) |
| Contractionary monetary policy actions (E52) | Increase in total income inequality (D31) |
| Contractionary monetary policy actions (E52) | Increase in consumption inequality (F62) |
| Contractionary monetary policy actions (E52) | Increase in total expenditures inequality (D31) |
| Contractionary monetary policy shocks (E49) | Higher inequality across households (D31) |
| Rising earnings inequality after contractionary shocks (F62) | Higher earnings at the upper end and lower earnings at the lower end of the distribution (D39) |
| Income transfers (H23) | Dampening effects of monetary policy shocks on inequality (F62) |
| Monetary policy shocks (E39) | Cyclical fluctuations in inequality over time (E32) |