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Innocent Bystanders? Monetary Policy and Inequality in the U.S

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Author Info

  • John Silvia
  • Lorenz Kueng
  • Olivier Coibion
  • Yuriy Gorodnichenko

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.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/199.

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Length: 57
Date of creation: 01 Aug 2012
Date of revision:
Handle: RePEc:imf:imfwpa:12/199

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Keywords: External shocks; Income distribution; Prices;

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References

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  1. Jonathan Heathcote & Fabrizio Perri & Giovanni L. Violante, 2009. "Unequal We Stand: An Empirical Analysis of Economic Inequality in the United States, 1967-2006," NBER Working Papers 15483, National Bureau of Economic Research, Inc.
  2. Olivier Coibion & Yuriy Gorodnichenko, 2008. "Monetary Policy, Trend Inflation and the Great Moderation: An Alternative Interpretation," NBER Working Papers 14621, National Bureau of Economic Research, Inc.
  3. Krueger, Dirk & Perri, Fabrizio, 2005. "Does income inequality lead to consumption inequality? Evidence and theory," CFS Working Paper Series 2005/15, Center for Financial Studies (CFS).
  4. Olivier Coibion, 2011. "Are the effects of monetary policy shocks big or small?," Working Papers 90, Department of Economics, College of William and Mary.
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Cited by:
  1. Jae Won Lee, . "Monetary Policy with Heterogeneous Households and Imperfect Risk-Sharing," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics.
  2. Markus K. Brunnermeier & Yuliy Sannikov, 2012. "Redistributive monetary policy," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 331-384.
  3. Michael Ehrmann & Michael Ziegelmeyer, 2014. "Household Risk Management and Actual Mortgage Choice in the Euro Area," BCL working papers 84, Central Bank of Luxembourg.
  4. Vincent Sterk & Silvana Tenreyro, 2013. "The Transmission of Monetary Policy Operations through Redistributions and Durable Purchases," CEP Discussion Papers dp1249, Centre for Economic Performance, LSE.
  5. Eswar S. Prasad, 2013. "Distributional Effects of Macroeconomic Policy Choices in Emerging Market Economies," NBER Working Papers 19668, National Bureau of Economic Research, Inc.
  6. Ɓukasz Rawdanowicz & Eckhard Wurzel & Ane Kathrine Christensen, 2013. "The Equity Implications of Fiscal Consolidation," OECD Economics Department Working Papers 1013, OECD Publishing.
  7. Silvana Tenreyro & Gregory Thwaites, 2013. "Pushing On a String: US Monetary Policy is Less Powerful in Recessions," CEP Discussion Papers dp1218, Centre for Economic Performance, LSE.

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