Report

Unconventional Monetary Policies and Inequality

Abstract: This paper examines the effects of unconventional monetary policies on household welfare across the wealth distribution following the Great Recession. Using a heterogeneous agent New Keynesian model, estimated with Bayesian methods, I analyze how forward guidance and quantitative easing affected inequality during this period. The findings show that while these policies boosted economic activity and benefited all households, they had non-linear distributional effects. Unconventional monetary policies reduced inequality within the bottom 90 percent by lowering unemployment but widened the income gap between the top 10 percent and the rest by raising profits and equity prices. Additionally, I find that forward guidance amplified both the aggregate and distributional effects of asset purchase programs. In comparison to conventional monetary policy, interest rate policy would have had more adverse distributional effects than quantitative easing if the policy rate had not been constrained by the zero lower bound.

Keywords: unconventional monetary policy; inequality; Heterogeneous-agent New Keynesian (HANK) model; quantitative easing; Bayesian estimation; zero lower bound;

JEL Classification: E12; E30; E52; E58;

https://doi.org/10.59576/sr.1108

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Staff Reports

Publication Date: 2024-07-01

Number: 1108

Note: Revised October 2024. Previous title: “Quantitative Easing and Inequality.”