The Impact of Monetary Policy on Income and Wealth Equality

Abstract

The gap between rich and poor has become one of the inescapable problems of the 21st century. It is important to study whether monetary policy can cause inequality in the distribution of income and wealth and, consequently, the widening of the income and wealth gap. This paper first introduces the three channels through which monetary policy affects the distribution of income and wealth, and analyses their effects on inequality according to different transmission mechanisms. The paper analyses the impact of monetary policy on wealth inequality from both empirical and theoretical perspectives and draws broad conclusions: 1. accommodative monetary policy reduces the debt burden of households, reduces the downward pressure on the economy, and thus promotes wealth equality; 2. expansionary monetary policy widens income inequality through the asset mix channel. Finally, combined with the theoretical analysis, the paper gives corresponding suggestions for optimising and improving China's monetary policy.