How Does Unconventional Monetary Policy Affect Inequality? Evidence from Japan

Abstract

Inequality has been largely ignored in the literature and practice of monetary policy, but is gaining more attention recently. We look at how a decade of unconventional monetary policy (UMP) in Japan affected inequality among households using survey data. Our vector auto regression (VAR) results show that UMP widened income inequality, especially after 2008 when quantitative easing became more aggressive. This is largely due to the portfolio channel. To the best of our knowledge, this is the first study to empirically analyze the distributional impact of UMP. Japan’s extensive experience with UMP may hold important policy implications for other countries.

Keywords: Monetary Policy, Central Banking, Stabilization Policy, Inequality

JEL Classification: E52, E63, D63