Monetary Policy and Racial Inequality

Abstract

This paper aims at an improved understanding of the relationship between monetary policy and racial inequality. We investigate the distributional effects of monetary policy in a unified framework, linking monetary policy shocks both to earnings and wealth differentials between Black and white households. Specifically, we show that, although an accommodative monetary policy shock increases employment for Black households more than for white households, the overall effects on earnings are small. At the same time, an accommodative monetary policy shock has large effects on the wealth difference between Black and white households, because Black households own fewer assets that appreciate in value. This suggests an important trade-off if policymakers aim to reduce racial inequalities.