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Does wealth inequality affect the transmission of monetary policy?

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  • Matusche, Alexander
  • Wacks, Johannes

Abstract

We provide evidence that higher wealth inequality between households is associated with stronger real effects of monetary policy. First, we use state-dependent local projections to show that the US and the UK exhibited stronger real effects of monetary policy in times of higher wealth inequality. Second, we measure wealth inequality within US states and document that economic activity responds more strongly to interest rate changes in states where wealth is distributed more unequally. Third, we show that ECB monetary policy has stronger real effects in Euro Area countries with higher wealth inequality.

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  • Matusche, Alexander & Wacks, Johannes, 2023. "Does wealth inequality affect the transmission of monetary policy?," Journal of Macroeconomics, Elsevier, vol. 75(C).
    • Handle: RePEc:eee:jmacro:v:75:y:2023:i:c:s0164070422000672
    DOI: 10.1016/j.jmacro.2022.103474
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    More about this item

    Keywords

    Wealth inequality; Monetary policy; State dependence;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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