Monetary policy and the redistribution of net worth in the US

The view that expansionary monetary policy can exacerbate both income and wealth inequality by increasing asset prices has become increasingly popular. The aim of this paper is to study the distributive effects of monetary policy on wealth inequality. In the first part of this research, we develop a simple framework based on accounting identity to examine the redistributive repercussions of changes in monetary policy on net worth through different channels. Based on this framework, in the second part of the paper, we show empirical evidence concerning the effects of monetary policy on wealth inequality in the US. To derive this, we combined macro and micro data, and proceeded in two steps. Firstly, we estimated a Proxy structural vector autoregression (SVAR) model, combining high-frequency identification used as external instruments with a classic SVAR, to measure the response of the real and financial variables that could affect wealth inequality after an expansive monetary policy shock. Considering this information, we then used the microdata of the Survey of Consumer Finance (US, 2016) and simulated changes to the value of a household's assets and liabilities, as well as the inflation rate, produced by an expansive monetary policy. We considered three different time horizons and the whole of the distribution, measured by the Gini coefficients, and the simulation results suggest that wealth inequality increases after an expansive monetary policy shock. Additionally, focusing on the net worth by deciles, we found a relevant result. The expansive monetary policy shock substantially increases the net worth of the richest and the poorest households, while the middle class tends to benefit the least. Monetary policy on stock prices is the most important driver of the significant increases in net wealth among the richest households, while its effect on debt is most significant among the poorest.