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The distributional effects of conventional monetary policy and quantitative easing: Evidence from an estimated DSGE model

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Abstract

This paper compares the distributional effects of conventional monetary policy and quantitative easing (QE) within an estimated open-economy DSGE model of the euro area. The model includes two groups of households: (i) wealthier households, who own financial assets and are able to smooth consumption over time, and (ii) poorer households, who only receive labor and transfer income and live ‘hand to mouth’. We use the model to compare the impact of policy shocks on constructed measures of income and wealth inequality (net disposable income, net asset position, and relative per-capita income). Except for the short term, expansionary conventional policy and QE shocks tend to mitigate income and wealth inequality between the two population groups. In light of the coarse dichotomy of households that abstracts from richer income and wealth dynamics at the individual level, the analysis emphasizes the functional distribution of income.

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  • Hohberger, Stefan & Priftis, Romanos & Vogel, Lukas, 2018. "The distributional effects of conventional monetary policy and quantitative easing: Evidence from an estimated DSGE model," Working Papers 2018-12, Joint Research Centre, European Commission (Ispra site).
  • Handle: RePEc:jrs:wpaper:201812
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    Cited by:

    1. Clara De Luigi & Martin Feldkircher & Philipp Poyntner & Helene Schuberth, 2019. "Effects of the ECB’s Unconventional Monetary Policy on Real and Financial Wealth," Department of Economics Working Papers wuwp286, Vienna University of Economics and Business, Department of Economics.
    2. Feldkircher, Martin & Poyntner, Philipp & Schuberth, Helene, 2019. "Effects of the ECB's Unconventional Monetary Policy on Real and Financial Wealth," Department of Economics Working Paper Series 7040, WU Vienna University of Economics and Business.

    More about this item

    Keywords

    Bayesian estimation; distributional effects; open-economy DSGE model; portfolio rebalancing; quantitative easing;

    JEL classification:

    • 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
    • E53 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Deposit Insurance
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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