Monetary Policy and Inequality

73 Pages Posted: 31 Mar 2021

See all articles by Asger Lau Andersen

Asger Lau Andersen

University of Copenhagen - Department of Economics

Niels Johannesen

University of Copenhagen

Mia Jørgensen

University of Copenhagen

José-Luis Peydró

Imperial College London; Centre for Economic Policy Research (CEPR); Universitat Pompeu Fabra - Faculty of Economic and Business Sciences

Date Written: December 1, 2020

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 income inequality by raising income shares at the top of the income distribution and reducing them at the bottom.

JEL Classification: E2, E4, E5, G1, G2, G5

Suggested Citation

Andersen, Asger Lau and Johannesen, Niels and Jørgensen, Mia and Peydro, Jose-Luis, Monetary Policy and Inequality (December 1, 2020). Available at SSRN: https://ssrn.com/abstract=3816796

Asger Lau Andersen (Contact Author)

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5
Bygning 26
1353 Copenhagen K.
Denmark

Niels Johannesen

University of Copenhagen ( email )

Nørregade 10
Copenhagen, København DK-1165
Denmark

Mia Jørgensen

University of Copenhagen ( email )

Nørregade 10
Copenhagen, København DK-1165
Denmark

Jose-Luis Peydro

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, Barcelona 08005
Spain
(+34) 93 542 1756 (Phone)
(+34) 93 542 1746 (Fax)

HOME PAGE: http://https://sites.google.com/site/joseluispeydroswebpage/

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