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Monetary policy and the wealth distribution

Author

Listed:
  • Alessandro Franconi
  • Giacomo Rella

Abstract

Using the Distributional Financial Accounts of the United States, we study the effects of monetary policy on the wealth distribution. The direction and persistence of these effects depend on the policy instrument. Interest rate cuts initially reduce wealth inequality but increase it in the medium run. Asset purchases, instead, increase wealth inequality but only temporarily. Housing is the main channel through which monetary policy affects wealth at the bottom while corporate equities explain wealth growth at the top. Using household-level data from the Panel Study of Income Dynamics, we document a wealth reversal at the bottom of the distribution: lower interest rates raise housing wealth in the short run but lead to higher mortgage debt and lower net wealth over time, contributing to the medium-term rise in inequality.

Suggested Citation

  • Alessandro Franconi & Giacomo Rella, 2025. "Monetary policy and the wealth distribution," Cahiers de recherche / Working Papers 2504, Chaire de recherche sur les enjeux économiques intergénérationnels / Research Chair in Intergenerational Economics.
    • Handle: RePEc:rsi:creeic:2504
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    Keywords

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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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