Monetary Policy and Racial Inequality

Alina K Bartscher (1) , Moritz Kuhn (2, 3, 4) , Moritz Schularick (5, 2, 3) , Paul Wachtel (6)

1 Danmarks Nationalbank
2 University of Bonn
3 CEPR - Center for Economic Policy Research
4 IZA - Forschungsinstitut zur Zukunft der Arbeit - Institute of Labor Economics
5 ECON - Département d'économie (Sciences Po)
6 NYU - NYU System

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 a more accommodative monetary policy increases employment of black households more than for white households, the overall effects are small. At the same time, an accommodative monetary policy shock exacerbates the wealth difference between black and white households, because black households own fewer financial assets that appreciate in value. Over a fiveyear horizon, the employment effects remain substantially smaller than the countervailing portfolio effects.

Keywords: Monetary policy; Racial inequality; Income distribution; Wealth distribution; Wealth effects

Domains: Economics and Finance

Alina K Bartscher, Moritz Kuhn, Moritz Schularick, Paul Wachtel. Monetary Policy and Racial Inequality. Brookings Papers on Economic Activity, In press. ⟨hal-03881327⟩