Monetary Policy and Household Inequality

38 Pages Posted: 1 Aug 2018

See all articles by Miguel Ampudia

Miguel Ampudia

European Central Bank (ECB) - Directorate General Research

Dimitris Georgarakos

European Central Bank (ECB) - Directorate General Research; Center for Financial Studies (CFS)

Jiri Slacalek

European Central Bank (ECB)

Oreste Tristani

European Central Bank (ECB)

Philip Vermeulen

European Central Bank (ECB)

Giovanni Violante

Princeton University

Date Written: July 18, 2018

Abstract

This paper considers how monetary policy produces heterogeneous effects on euro area households, depending on the composition of their income and on the components of their wealth. We first review the existing evidence on how monetary policy affects income and wealth inequality. We then illustrate quantitatively how various channels of transmission—net interest rate exposure, intertemporal substitution and indirect income channels—affect individual euro area households. We find that the indirect income channel has an overwhelming importance, especially for households holding few or no liquid assets. The indirect income channel is therefore also a substantial driver of changes in consumption at the aggregate level.

Keywords: monetary policy, inequality, household heterogeneity, quantitative easing

JEL Classification: D14, D31, E21, E52, E58

Suggested Citation

Ampudia, Miguel and Georgarakos, Dimitris and Slacalek, Jiri and Tristani, Oreste and Vermeulen, Philip and Violante, Giovanni, Monetary Policy and Household Inequality (July 18, 2018). ECB Working Paper No. 2170. Available at SSRN: https://ssrn.com/abstract=3223542

Miguel Ampudia

European Central Bank (ECB) - Directorate General Research ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

Dimitris Georgarakos

European Central Bank (ECB) - Directorate General Research ( email )

Sonnemannstrasse 20
Frankfurt am Main, 60314
Germany

Center for Financial Studies (CFS) ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Jiri Slacalek (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Oreste Tristani

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
0049 69 13440 (Phone)
0049 69 1344 6000 (Fax)

Philip Vermeulen

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Giovanni Violante

Princeton University

22 Chambers Street
Princeton, NJ 08544-0708
United States

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