CENTRAL BANK POLICIES AND INCOME AND WEALTH INEQUALITY: A SURVEY

This paper reviews recent research on the relationship between central bank policies and inequality. A new paradigm which integrates sticky‐prices, incomplete markets, and heterogeneity among households is emerging, which allows for the joint study of how inequality shapes macroeconomic aggregates a...

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Bibliographic Details
Published inJournal of economic surveys Vol. 33; no. 4; pp. 1199 - 1231
Main Authors Colciago, Andrea, Samarina, Anna, Haan, Jakob
Format Journal Article
LanguageEnglish
Published Oxford Blackwell Publishing Ltd 01.09.2019
Subjects
Central banks
Economic inequality
Economic models
Equilibrium
Households
Income inequality
Inequality
Inflation
Macroeconomics
Macroprudential policy
Markets
Monetary policy
Prices
Redistribution
Sticky prices
Wealth
Wealth inequality
Wisdom
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Summary:This paper reviews recent research on the relationship between central bank policies and inequality. A new paradigm which integrates sticky‐prices, incomplete markets, and heterogeneity among households is emerging, which allows for the joint study of how inequality shapes macroeconomic aggregates and how macroeconomic shocks and policies affect inequality. The new paradigm features multiple distributional channels of monetary policy. Most empirical studies, however, analyze each potential channel of redistribution in isolation. Our review suggests that empirical research on the effects of conventional monetary policy on income and wealth inequality yields mixed findings, although there seems to be a consensus that higher inflation, at least above some threshold, increases inequality. In contrast to common wisdom, conclusions concerning the impact of unconventional monetary policies on inequality are also not clear cut. To better understand policy effects on inequality, future research should focus on the estimation of General Equilibrium models with heterogeneous agents.
ISSN:0950-0804
1467-6419
DOI:10.1111/joes.12314