Easing for Whom? Central Bank Asset Purchases and Household Inequlity

Abstract

Does monetary policy affect household inequality? Does household inequality affect monetary policy transmission? We build a two-agent New Keynesian model with conventional monetary policy and central bank asset purchases to quantitatively address these questions. Expansionary shocks to conventional policy and asset purchases amplify responses of output relative to a representative agent model. Expansionary shocks to conventional policy reduce inequality, while the effect of increased asset purchases on inequality is ambiguous. Expansionary purchases are more likely to increase inequality when those purchases are very persistent or when the central bank follows a strict inflation target. On the other hand, expansionary purchases are more likely to reduce inequality when the policy rate is at the zero lower bound.