Monetary Policy and Racial Inequality
47 Pages Posted: 1 Feb 2021 Last revised: 30 Jun 2021
Date Written: January 1, 2021
This paper aims at an improved understanding of the relationship between monetary policy and racial inequality. We investigate the distributional effects of monetary policy in a unified framework, linking monetary policy shocks both to earnings and wealth differentials between black and white households. Specifically, we show that, although a more accommodative monetary policy increases employment of black households more than white households, the overall effects are small. At the same time, an accommodative monetary policy shock exacerbates the wealth difference between black and white households, because black households own fewer financial assets that appreciate in value. Over a five-year horizon, the employment effects remain substantially smaller than the countervailing portfolio effects.
Keywords: monetary policy, racial inequality, income distribution, wealth distribution, wealth effects
JEL Classification: E40, E52, J15
Suggested Citation: Suggested Citation