Report

Unconventional Monetary Policies and Inequality

Abstract: This paper examines the aggregate and distributional effects of the Federal Reserve’s unconventional monetary policy, comprising quantitative easing and forward guidance, during the 2009–2015 effective lower bound episode, using an estimated medium-scale heterogeneous agent New Keynesian model. Relative to a counterfactual without unconventional policy, these interventions stimulate aggregate activity and generate broad-based welfare gains, with an average gain equivalent to a 0.27 percent increase in lifetime consumption. These welfare gains are mildly U-shaped across the wealth distribution, with households at the bottom gaining mainly from a lower unemployment rate, while higher profits and equity prices benefit the top disproportionately. Comparing these outcomes to an unconstrained conventional interest rate rule, I find that once unconventional tools are available the effective lower bound is not very costly in aggregate terms, while conventional policy alone would have implied somewhat more uneven distributional effects.

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 2026. Previous title: “Quantitative Easing and Inequality.”