The Effect of Unconventional Monetary Policy on Income Inequality: The U.S. Case

This paper explores the distributional effect of unconventional monetary policy on income inequality in the United States. Using vector autoregression or vector error correction models and quarterly measures of inequality, we examine whether an increase in the Fed’s balance sheet had an impact on total before-tax income and labor earnings. Our findings indicate that unconventional monetary policy worsens labor earning distribution with the result being significant and consistent with different measures of monetary easing and income inequality variables. In contrast, the impact on total income distribution found to be ambiguous and inconsistent between different specifications. We also find evidence for the existence of the income composition channel, but the quality and reliability of the wealth data on CEX do not allow us to decompose the effect of the QE on the total before-tax income and labor income.