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Federal reserve monetary policy and income inequality across US states

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  • El-Shagi, Makram
  • Yamarik, Steven J.

Abstract

This paper examines the impact of Federal Reserve policy on income inequality across US states. We use the local projections method of Jordà to estimate impulse response functions for each state. We find that a restrictive monetary policy increases income inequality in almost all states, but with differing magnitudes. We also use panel analysis to examine the possible transmission mechanisms that account for these differences. Our empirical results confirm the theoretical predictions – inequality is increased by higher inflation, home ownership, and earnings in the finance, insurance and real estate (FIRE) sector; but decreased by higher housing prices, unionization rates, educational attainment and minimum wage.

Suggested Citation

  • El-Shagi, Makram & Yamarik, Steven J., 2026. "Federal reserve monetary policy and income inequality across US states," Journal of International Money and Finance, Elsevier, vol. 161(C).
    • Handle: RePEc:eee:jimfin:v:161:y:2026:i:c:s0261560625002402
    DOI: 10.1016/j.jimonfin.2025.103505
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    Keywords

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    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • R19 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Other

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