Monetary Policy and Inequality

Abstract

JT03390505Complete document available on OLIS in its original format This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. ECO/WKP(2016)5 UnclassifiedEnglish -Or. English ECO/WKP(2016)5 2 OECD Working Papers should not be reported as representing the official views of the OECD or of its member countries. The opinions expressed and arguments employed are those of the author(s).Working Papers describe preliminary results or research in progress by the author(s) and are published to stimulate discussion on a broad range of issues on which the OECD works.Comments on Working Papers are welcomed, and may be sent to the Economics Department, OECD, 2 rue André-Pascal, 75775 Paris Cedex 16, France, or by e-mail to eco.contact@oecd.org.All Economics Department Working Papers are available at www.oecd.org/eco/workingpapers. © OECD (2016)You can copy, download or print OECD content for your own use, and you can include excerpts from OECD publications, databases and multimedia products in your own documents, presentations, blogs, websites and teaching materials, provided that suitable acknowledgment of OECD as source and copyright owner is given. All requests for commercial use and translation rights should be submitted to rights@oecd.org ECO/WKP(2016)5 3 ABSTRACT/RÉSUMÉ Monetary Policy and InequalityThis paper analyses two-way interactions between monetary policy and inequality in selected advanced economies. In the context of a highly accommodative monetary stance over recent years, the analysis focuses on the effects of monetary policy on inequality over the business cycle via its impacts on returns on assets, the cost of debt servicing and asset prices. While monetary policy easing has a priori ambiguous effects on income and net wealth inequality, in practice these effects are estimated to be small. Cross-country differences in the size and distribution of income and net wealth explain contrasting effects. A house price increase generally reduces net wealth inequality, while the opposite is true for increases in equity and bond prices. Higher inequality can reduce the effectiveness of monetary policy stimulus in boosting private consumption, but such effects are estimated to be small. Cross-country differences in the size and composition of household financial assets rather than in their distribution are more relevant for differences in the effectiveness of monetary policy, especially via the wealth channel. JEL classification codes: D31, D63, E21, E3, E5.Key words: income inequality, net wealth inequality, monetary policy, consumption wealth effects. ******************** Politique monétaire et inégalitésLe présent article a pour objet d'analyser les interactions réciproques entre la politique monétaire et les inégalités dans certaines économies avancées. Dans le contexte d'une politique monétaire très accommodante au cours des dernières années, l'ana...

House Prices and Credit as Transmission Channels from Monetary Policy to Inequality: Evidence from OECD Countries

“…Contrary results have also been found, Villarreal (2014) showing an unanticipated increase in the nominal interest rate reducing income inequality in the short run in Mexico, and Davtyan (2017) reporting a contractionary monetary policy having positive redistributive effects in the U.S. Likewise, when emphasizing the relevance of nancial channels in its transmission, the redistributive effects of monetary policy tend to be small, inequality decreases with rising house prices but increases with bond and equity price hikes (O'Farrell et al, 2016).…”