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Staff Reports

Unconventional Monetary Policies and Inequality

Previous title: “Quantitative Easing and Inequality”

Number 1108
July 2024 Revised October 2024

JEL classification: E12, E30, E52, E58

Author: Donggyu Lee

This paper examines the effects of unconventional monetary policies on household welfare across the wealth distribution following the Great Recession. Using a heterogeneous agent New Keynesian model, estimated with Bayesian methods, I analyze how forward guidance and quantitative easing affected inequality during this period. The findings show that while these policies boosted economic activity and benefited all households, they had non-linear distributional effects. Unconventional monetary policies reduced inequality within the bottom 90 percent by lowering unemployment but widened the income gap between the top 10 percent and the rest by raising profits and equity prices. Additionally, I find that forward guidance amplified both the aggregate and distributional effects of asset purchase programs. In comparison to conventional monetary policy, interest rate policy would have had more adverse distributional effects than quantitative easing if the policy rate had not been constrained by the zero lower bound.

Full Article

Author Disclosure Statement(s)

Donggyu Lee
The author declares that he has no relevant or material financial interests that relate to the research described in this paper.

Suggested Citation:
Lee, Donggyu. 2024. “Quantitative Easing and Inequality.” Federal Reserve Bank of New York Staff Reports, no. 1108, July. https://doi.org/10.59576/sr.1108

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