Abstract
As an answer to the ?Great Recession? and Zero Lower Bound problem, main central banks had to use unconventional monetary policy (UMP). This research focuses on the distributive effects of these measures on household income and household wealth in the United States of America (USA) and the Eurozone. For this purpose, this paper presents four models that were constructed using the Structural Vector Autoregressive methodology (SVAR). The results suggest that the UMPs applied by the Federal Reserve (FED) in the USA could increase wealth and income inequality through the portfolio channel. However, the same results were not observed in the Eurozone.
Highlights
Income and wealth inequality has increased in developed countries since the 1980s as measured by the income and wealth share of the top decile and the Gini coefficient (Thomas Piketty 2014; Hedva Sarfati 2015)
This hypothesis is plausible as supported by the study of Domanski, Scatigna, and Zabai (2016), wherein they applied simulation techniques in a large number of European countries using data from the Household Finance and Consumption Survey (HFCS) published by the European Central Bank (ECB); and they found that low interest rates and rising bond prices have minimal effects on wealth inequality, whereas rising equity prices might have added to wealth inequality and largely benefit the top end of the net wealth distribution
This study shows the redistributive effects of the unconventional monetary policy (UMP), as represented by the monetary base, on the United States of America (USA) and the Eurozone
Summary
This may be due to the fact that QE increases the price of assets of individuals with greater wealth who, in turn, have a low propensity to consume, whereas the effect on the rest of individuals with a greater propensity to consume is modest In this regard, the evidence shows that: (i) as a consequence of an unexpected reduction in interest rates, households with high mortgages and typically lower incomes had a greater than two-fold increase in their consumption compared to households with low mortgages (Marco Di Maggio, Amir Kermani, and Rodney Ramcharan 2014); (ii) a recent study by Sumit Agarwal et al (2015) examined the ability of policymakers to stimulate household spending during the “Great Recession” by reducing banks’ cost of funds. It is important to remember that there are other compensatory channels that could dispel this effect if it occurs
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