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How does monetary policy affect income and wealth inequality? Evidence from quantitative easing in the euro area

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  • Lenza, Michele
  • Slacalek, Jiri

Abstract

This paper studies the effects of quantitative easing on income and wealth of individual euro area households. The aggregate effects of quantitative easing are estimated in a multi-country VAR model of the four largest euro area countries, in which key variables affecting household income and wealth are included, such as the unemployment rate, wages, interest rates, house prices and stock prices. The aggregate effects are distributed across the individual households by means of a reduced-form simulation on micro data from the Household Finance and Consumption Survey, capturing the income composition, the portfolio composition and the earnings heterogeneity channels of transmission. We find that the earnings heterogeneity channel plays a key role: quantitative easing compresses the income distribution since many households with lower incomes become employed. In contrast, monetary policy has only negligible effects on wealth inequality. JEL Classification: D14, D31, E44, E52, E58

Suggested Citation

  • Lenza, Michele & Slacalek, Jiri, 2018. "How does monetary policy affect income and wealth inequality? Evidence from quantitative easing in the euro area," Working Paper Series 2190, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20182190
    Note: 411196
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    More about this item

    Keywords

    Great Recession; household heterogeneity; income; inequality; monetary policy; quantitative easing; wealth;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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