Central Bank Policies and Income and Wealth Inequality: A Survey

38 Pages Posted: 25 May 2018

See all articles by Andrea Colciago

Andrea Colciago

De Nederlandsche Bank - Research Department; Università degli Studi di Milano-Bicocca - Department of Political Economics

Anna SamarIna

De Nederlandsche Bank

Jakob de Haan

University of Groningen - Faculty of Economics and Business; De Nederlandsche Bank; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: May 22, 2018

Abstract

This paper takes stock of the literature on the relationship between central bank policies and inequality. A new paradigm which integrates sticky-prices, incomplete markets and heterogeneity among households is emerging, which allows to jointly study how inequality shapes macroeconomic aggregates and how macroeconomic shocks and policies affect inequality. While the new paradigm features multiple distributional channels of monetary policy, most empirical analyses analyse each potential channel of redistribution in isolation. Our review suggests that empirical research on the effect of conventional monetary policy on income and wealth inequality yields very mixed findings, although there seems to be a consensus that higher inflation, at least above some threshold, increases inequality. In contrast to common wisdom, the conclusions concerning the impact of unconventional monetary policies on income inequality are also not clear cut. This is so since these policies may reduce income inequality by stimulating economic activity, but may also increase inequality by boosting asset prices. Similarly, results concerning the impact of unconventional monetary policies on wealth inequality are rather mixed. The scant literature on the impact of macro-prudential policies on inequality finds evidence for redistributive effects, but in view of its limitations it may be too early to come to conclusions.

Keywords: income inequality, wealth inequality, monetary policy, macro-prudential policy

JEL Classification: D63, E52, E58

Suggested Citation

Colciago, Andrea and SamarIna, Anna and de Haan, Jakob, Central Bank Policies and Income and Wealth Inequality: A Survey (May 22, 2018). De Nederlandsche Bank Working Paper No. 594. Available at SSRN: https://ssrn.com/abstract=3184342 or http://dx.doi.org/10.2139/ssrn.3184342

Andrea Colciago (Contact Author)

De Nederlandsche Bank - Research Department ( email )

P.O. Box 98
1000 AB Amsterdam
Netherlands

Università degli Studi di Milano-Bicocca - Department of Political Economics ( email )

Piazza dell'Ateneno Nuovo 1
Milano, 20126
Italy

Anna SamarIna

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Jakob de Haan

University of Groningen - Faculty of Economics and Business ( email )

PO Box 800
Groningen, 9700 AV
Netherlands
+31 0 50 3633706 (Fax)

De Nederlandsche Bank ( email )

P.O. Box 98
Amsterdam, 1000 AB
Netherlands

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

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