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Distributional Effects of Monetary Policy

Author

Listed:
  • Veronika Selezneva

    (Northwestern University)

  • Martin Schneider

    (Stanford University)

  • Matthias Doepke

    (Northwestern University)

Abstract

We assess the distributional consequences of monetary policy in the current economic environment in the United States. Through its effect on inflation, monetary policy affects the real value of nominal assets and liabilities, and therefore redistributes wealth between borrowers and lenders in the economy. In addition, unconventional policies such as 'quantitative easing' affect real interest rates and the availability of credit, once again leading to redistributional effects. We first document the potential exposure to redistribution effects on the U.S. economy using recent data from the Flow of Funds accounts and the Survey of Consumer Finance. We then quantify the redistribution effects of monetary policy using a rich life-cycle model with idiosyncratic risk, financial constraints, a housing sector, and nominal borrowing and lending. We also discuss the extent to which the recent financial crisis, which has lowered net worth of many households and tightened financial constraints, has changed the nature of distributional consequences of monetary policy.

Suggested Citation

  • Veronika Selezneva & Martin Schneider & Matthias Doepke, 2015. "Distributional Effects of Monetary Policy," 2015 Meeting Papers 1099, Society for Economic Dynamics.
    • Handle: RePEc:red:sed015:1099
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    References listed on IDEAS

    as
    1. Adrien Auclert, 2019. "Monetary Policy and the Redistribution Channel," American Economic Review, American Economic Association, vol. 109(6), pages 2333-2367, June.
    2. Matthias Doepke & Martin Schneider, 2006. "Aggregate Implications of Wealth Redistribution: The Case of Inflation," Journal of the European Economic Association, MIT Press, vol. 4(2-3), pages 493-502, 04-05.
    3. Mr. John Silvia & Mr. Lorenz Kueng & Mr. Olivier Coibion & Mr. Yuriy Gorodnichenko, 2012. "Innocent Bystanders? Monetary Policy and Inequality in the U.S," IMF Working Papers 2012/199, International Monetary Fund.
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