Heterogeneous Households, Wealth Disparity and Unconventional Monetary Policy

Abstract

This paper explores the income and wealth effects through modeling heterogeneous households while studying the effects of Unconventional Monetary Policy (UMP). The research finds that, through the methodological application of Weighted Expectation Maximization (WEM) Cluster Modeling and subsequent calculation of the Malhalanobis Distance, through recent periods of quantitative easing and low interest rates, there has been notable volatility and bifurcation in the distributions of capital gains and income variables to U.S. households. We herein utilize the weights inherent in modern multiply imputed surveys, such as the Federal Reserve Board's Survey of Consumer Finances (SCF), to apply the EM algorithm to empirically study wealth disparity in the U.S. through the effect of unconventional monetary policy and low interest rates, due to the Financial Crisis of 2008 and the Sars-CoV-2 pandemic, on wealth holders.

Keywords: Wealth disparity, quantitative easing, weighted expectation maximization, cluster modeling, malhalanobis distance, inequality, data science

JEL Classification: B16, B23, G00