OECD Economics Department Working Papers

Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

Monetary Policy and Inequality

This paper analyses two-way interactions between monetary policy and inequality in selected advanced economies. In the context of a highly accommodative monetary stance over recent years, the analysis focuses on the effects of monetary policy on inequality over the business cycle via its impacts on returns on assets, the cost of debt servicing and asset prices. While monetary policy easing has a priori ambiguous effects on income and net wealth inequality, in practice these effects are estimated to be small. Cross-country differences in the size and distribution of income and net wealth explain contrasting effects. A house price increase generally reduces net wealth inequality, while the opposite is true for increases in equity and bond prices. Higher inequality can reduce the effectiveness of monetary policy stimulus in boosting private consumption, but such effects are estimated to be small. Cross-country differences in the size and composition of household financial assets rather than in their distribution are more relevant for differences in the effectiveness of monetary policy, especially via the wealth channel.


Keywords: net wealth inequality, monetary policy, consumption wealth effects, income inequality

E3: Macroeconomics and Monetary Economics / Prices, Business Fluctuations, and Cycles;
D31: Microeconomics / Distribution / Personal Income, Wealth, and Their Distributions;
E5: Macroeconomics and Monetary Economics / Monetary Policy, Central Banking, and the Supply of Money and Credit;
E21: Macroeconomics and Monetary Economics / Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy / Macroeconomics: Consumption; Saving; Wealth;
D63: Microeconomics / Welfare Economics / Equity, Justice, Inequality, and Other Normative Criteria and Measurement