Monetary policy and inequality

16 Pages Posted: 28 Sep 2021

Date Written: September 23, 2021

Abstract

The article provides a literature review of studies of the impact of monetary policy on the income and wealth inequality. Based on the analysis and systematization of the articles, mainly written over the past 25-30 years, the main approaches to assessing the extent to which the Federal Reserve's actions are responsible for the growth of inequality in the United States are identified. It was revealed that the relative unanimity of economists on this issue was replaced by significant pluralism of opinions after the crisis of 2007-2009, which, among other reasons, was caused by the activity of central banks and their use of non-conventional approaches in conducting to the monetary policy. In addition, the channels through which the actions of central banks affect the distribution of wealth in the economy are identified. In total, five such channels were singled out. One of them, the “Cantillon effect,” despite being known for a very long time, is extremely rare in the work of economists. The article provides empirical evidence of why this effect is significant for the American economy, and theoretical arguments indicating that taking the Cantillon effect into account can add certainty to studies of both the costs of monetary policy and the problem of inequality.

Keywords: Cantillon effect, inequality, monetary policy

JEL Classification: E14, E31, E52, D31

Suggested Citation

Rakviashvili, Alexander, Monetary policy and inequality (September 23, 2021). Available at SSRN: https://ssrn.com/abstract=3929595 or http://dx.doi.org/10.2139/ssrn.3929595

Alexander Rakviashvili (Contact Author)

The University of Georgia ( email )

77a M.Kostava Street
Tbilisi, 0171
Georgia

HOME PAGE: http://https://www.ug.edu.ge/en

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