Must-Read: Olivier Coibion et al.: Monetary Policy and Inequality in the United States

Must-Read: Olivier Coibion et al.: Monetary Policy and Inequality in the United States:

We study the effects of monetary policy shocks on—and their historical contribution to—consumption and income inequality in the United States since 1980…

Contractionary monetary policy systematically increases inequality in labor earnings, total income, consumption and total expenditures… account for a non-trivial component of the historical cyclical variation in income and consumption inequality…. a contractionary monetary policy shock is characterized by a widening of the earnings distribution above the median but a tightening of the earnings distribution below the median, leading to only small effects (if any) on inequality as measured by the difference between the 90th and the 10th percentile. In contrast, we find more heterogeneity in total income responses. Incomes of those at the 90th percentile rise persistently relative to the median household while those at the 10th percentile see their income decline relative to the median, especially at longer horizons…. In the 1990s, labor income accounted for nearly 80% of total income for the highest quintile, but less than 40% for the bottom quintile.