May 30, 2019.

Central bankers have argued that their post-crisis quantitative easing policies have had only modest effects on inequality, and have benefited low-income households by restoring growth and increasing employment levels. But a new study by Mehdi El Herradi and Aurélien Leroy for DeNederlandscheBank contradicts that argument. Following an expansionary monetary policy shock, the share of national income held by the richest 1 percent actually increases by approximately 1 to 6 percentage points, according to estimates from the Panel VAR and Local Projections. Monetary policy has a significant impact on income inequality. The authors also state, “The increase in [the] top 1 percent’s share is arguably the result of higher asset prices.”

In the study’s conclusion, the authors call on central bankers to consider this effect when making policy decisions:

“What are the policy implications we can draw from these findings for the ongoing debate on monetary policy and inequality? Central bankers need to be attentive not only to the aggregate consequences of monetary policy but also to their side effects.”

[Read the study]