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Monetary Policy Shocks and Inflation Inequality

Author

Listed:
  • Christoph Lauper

    (University of Lausanne)

  • Giacomo Mangiante

    (Bank of Italy)

Abstract

This paper studies how monetary policy shocks influence the distribution of household-level inflation rates. We find that contractionary monetary policy shocks significantly and persistently decrease inflation dispersion in the economy. Moreover, different demographic groups are heterogeneously affected by monetary policy. Due to the different consumption baskets purchased, low- and middle-income households experience higher median inflation rates, which are at the same time more responsive to a contractionary monetary shock, leading to an overall convergence of inflation rates across income groups. The same result holds for expenditure and salary groups. The expenditures on Energy, Water, and Gasoline are the main drivers behind these results. These findings imply that the impact of monetary policy shocks on expenditure inequality is between 20 and 30 percent more muted once we control for differences in individual inflation rates. Overall, our empirical evidence highlights the importance of inflation heterogeneity in studying the distributional consequences that monetary policies can have.

Suggested Citation

  • Christoph Lauper & Giacomo Mangiante, 2025. "Monetary Policy Shocks and Inflation Inequality," International Journal of Central Banking, International Journal of Central Banking, vol. 21(4), pages 135-190, October.
    • Handle: RePEc:ijc:ijcjou:y:2025:q:4:a:3
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    References listed on IDEAS

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    1. Aoki, Kosuke, 2001. "Optimal monetary policy responses to relative-price changes," Journal of Monetary Economics, Elsevier, vol. 48(1), pages 55-80, August.
    2. Xavier Jaravel, 2019. "The Unequal Gains from Product Innovations: Evidence from the U.S. Retail Sector," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(2), pages 715-783.
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