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Monetary Policy and the Top 1%: Evidence from a Century of Modern Economic History

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  • Mehdi El Herradi

    (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

  • Aurélien Leroy

    (UB - Université de Bordeaux)

Abstract

This paper examines the distributional effects of monetary policy in 12 OECD economies between 1920 and 2016. We exploit the implications of the macroeconomic policy trilemma with an external instrument approach to analyze how top income shares respond to monetary policy shocks. The results indicate that monetary tightening strongly decreases the share of national income held by the top 1 percent and vice versa for a monetary expansion, irrespective of the position of the economy. This effect (i) holds for the top percentile and the ultrarich (top 0.1 percent and 0.01 percent income shares), while (ii) it does not necessarily induce a decrease in income inequality when considering the entire income distribution. Our findings also suggest that the effect of monetary policy on top income shares is likely to be channeled via real asset returns.

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  • Mehdi El Herradi & Aurélien Leroy, 2021. "Monetary Policy and the Top 1%: Evidence from a Century of Modern Economic History," Post-Print hal-03513433, HAL.
    • Handle: RePEc:hal:journl:hal-03513433
    Note: View the original document on HAL open archive server: https://amu.hal.science/hal-03513433
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    Cited by:

    1. Karl-Friedrich Israel & Tim Florian Sepp & Nils Sonnenberg, 2023. "The Effects of Unconventional Monetary Policy on Stock Markets and Household Incomes in Japan," Post-Print halshs-04024219, HAL.
    2. Davtyan, Karen, 2023. "Unconventional monetary policy and economic inequality," Economic Modelling, Elsevier, vol. 126(C).
    3. Israel, Karl-Friedrich & Sepp, Tim Florian & Sonnenberg, Nils, 2023. "The effects of unconventional monetary policy on stock markets and household incomes in Japan," Working Papers 177, University of Leipzig, Faculty of Economics and Management Science.

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