Monetary Policy and Racial Inequality

41 Pages Posted: 1 Feb 2021

See all articles by Alina K. Bartscher

Alina K. Bartscher

University of Bonn

Moritz Kuhn

University of Bonn

Moritz Schularick

University of Bonn - Department of Economics; Centre for Economic Policy Research (CEPR)

Paul Wachtel

New York University - Stern School of Business

Multiple version iconThere are 4 versions of this paper

Date Written: January 2021

Abstract

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 less financial assets that appreciate in value. Over multi-year time horizons, the employment effects are substantially smaller than the countervailing portfolio effects. We conclude that there is little reason to think that accommodative monetary policy plays a significant role in reducing racial inequities in the way often discussed. On the contrary, it may well accentuate inequalities for extended periods.

Keywords: monetary policy, racial inequality, income distribution, wealth distribution, wealth effects

JEL Classification: E40, E52, J15

Suggested Citation

Bartscher, Alina K. and Kuhn, Moritz and Schularick, Moritz and Wachtel, Paul, Monetary Policy and Racial Inequality (January 2021). FRB of New York Staff Report No. 959, Available at SSRN: https://ssrn.com/abstract=3775699 or http://dx.doi.org/10.2139/ssrn.3775699

Alina K. Bartscher

University of Bonn ( email )

Regina-Pacis-Weg 3
Postfach 2220
Bonn, D-53012
Germany

Moritz Kuhn

University of Bonn ( email )

Regina-Pacis-Weg 3
Postfach 2220
Bonn, D-53012
Germany

Moritz Schularick (Contact Author)

University of Bonn - Department of Economics ( email )

Bonn
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Paul Wachtel

New York University - Stern School of Business ( email )

44 West 4th St.
New York, NY 10012
United States
212-998-4030 (Phone)
212-995-4218 (Fax)

HOME PAGE: http://www.stern.nyu.edu/~pwachtel

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