Did Quantitative Easing Increase Income Inequality?

34 Pages Posted: 19 Nov 2015 Last revised: 22 Feb 2022

See all articles by Juan Montecino

Juan Montecino

University of Massachusetts Amherst, Department of Economics, Students

Gerald Epstein

University of Massachusetts at Amherst - College of Social and Behavioral Sciences - Department of Economics

Date Written: October 1, 2015

Abstract

The impact of the post-meltdown Federal Reserve policy of ultra-low interest rates and Quantitative Easing (QE) on income and wealth inequality has become an important policy and political issue. Critics have argued that by raising asset prices, near-zero interest rates and QE have significantly contributed to increases in inequality, while practitioners of central banking, counter that the distributional impact have probably been either neutral or even egalitarian in nature due to its employment impacts. Yet there has been little academic research that addresses empirically this important question. We use data from the Federal Reserve’s Tri-Annual Survey of Consumer Finances (SCF) and look at the evolution of income by quintile between the “Pre-QE period” and the “QE period” analyzing three key impact channels of QE policy on income distribution: 1) the employment channel 2) the asset appreciation and return channel, and 3) the mortgage refinancing channel. Using recentered influence function (RIF) regressions pioneered by Firpo et. al (2007) in conjunction with the well-known Oaxaca-Blinder decomposition technique, we find that while employment changes and mortgage refinancing were equalizing, these impacts were nonetheless swamped by the large dis-equalizing effects of equity price appreciations. Reductions in returns to short term assets added further to dis-equalizing processes between the periods. Bond price appreciations, surprisingly, had little distributional impact. We cannot know precisely how much of these changes are due to QE as opposed to other influences, but to assess potential causal effects we utilize a counter-factual exercise to assess the quantitative range of impacts of QE on the main channels. We conclude that, most likely, QE was modestly dis-equalizing, despite having some positive impacts on employment and mortgage refinancing. The modestly dis-equalizing impacts were due to both policy choices and deep seated structural problems, such as the long-term deterioration in labor market opportunities for many workers due to globalization and legal and political reductions in labor bargaining power that have contributed to long term wage stagnation. Finally, there is no support in our analysis, for the proposition that raising interest rates would be an efficient mechanism for improving income distribution, because of the likely costs in terms of employment and debt refinancing opportunities.

Keywords: Quantitative Easing, Monetary Policy, Federal Reserve, Inequality

JEL Classification: E02, E58, E61

Suggested Citation

Montecino, Juan and Epstein, Gerald, Did Quantitative Easing Increase Income Inequality? (October 1, 2015). Institute for New Economic Thinking Working Paper Series No. 28, Available at SSRN: https://ssrn.com/abstract=2692637 or http://dx.doi.org/10.2139/ssrn.2692637

Juan Montecino

University of Massachusetts Amherst, Department of Economics, Students ( email )

Amherst, MA 01003
United States

Gerald Epstein (Contact Author)

University of Massachusetts at Amherst - College of Social and Behavioral Sciences - Department of Economics ( email )

Amherst, MA 01003
United States
413-545-4815 (Phone)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
359
Abstract Views
2,777
rank
123,420
PlumX Metrics