how quantitative easing works evidence on the refinancing channel we document the transmission of large scale asset purchases by the federal reserve to the real economy using rich borrower linked mortgage market data and an identification strategy based on mortgage market segmentation we find that central bank qe1 mbs purchases substantially increased refinancing activity reduced interest payments for refinancing households led to a boom in equity extraction and increased aggregate consumption relative to qe ineligible jumbo mortgages qe eligible conforming mortgage interest rates fell by an additional 40 bp and refinancing volumes increased by an additional 56 during qe1 we estimate that households refinancing during qe1 increased their durable consumption by 12 our results highlight that the transmission of unconventional monetary policy to the real economy depends crucially on the composition of assets purchased and the degree of segmentation in the marke

inflation and income inequality in a variety expansion growth model with menu costs abstract this study explores the effect of inflation on income inequality in a growth model with variety expansion and menu costs inflation is found to determine income inequality via both asset value and interest rates effects our numerical analyses show that higher inflation turns these effects negative stifling economic growth and mitigating income inequality

the distributional effects of conventional monetary policy and quantitative easing evidence from an estimated dsge model abstract this paper compares the distributional effects of conventional monetary policy and quantitative easing qe within an estimated open economy dsge model of the euro area the model includes two groups of households i wealthier households who own financial assets and are able to smooth consumption over time and ii poorer households who only receive labor and transfer income and live hand to mouth we use the model to compare the impact of policy shocks on constructed measures of income and wealth inequality net disposable income net asset position and relative per capita income except for the short term expansionary conventional policy and qe shocks tend to mitigate income and wealth inequality between the two population groups in light of the coarse dichotomy of households that abstracts from richer income and wealth dynamics at the individual level the analysis emphasizes the functional distribution of income

robust determinants of income inequality while economic theory suggests a wide range of potential determinants of income inequality there is little consensus regarding the most relevant ones such a lack of consensus reflects to an important extent the impact of model uncertainty using model averaging techniques specifically wals weighted average least squares to get at a robust set of determinants our results underscore the multiplicity of factors behind rising national level inequalities in the cross section the level of development and demographics as well as unemployment and globalization seem to be key drivers trade and financial globalization have asymmetric effects with trade integration associated with lower inequality and financial globalization with higher inequality financial deregulation and technological change seem to be important drivers of inequality particularly in advanced economies

has consumption inequality mirrored income inequality we revisit to what extent the increase in income inequality since 1980 was mirrored by consumption inequality we do so by constructing an alternative measure of consumption expenditure using a demand system to correct for systematic measurement error in the consumer expenditure survey our estimation exploits the relative expenditure of high and low income households on luxuries versus necessities this double differencing corrects for measurement error that can vary over time by good and income we find consumption inequality tracked income inequality much more closely than estimated by direct responses on expenditures jel d31 d63 e21

inequality and the business cycle evidence from u s survey data we study the effects of macroeconomic shocks on measures of economic inequality obtained from u s survey data to identify aggregate supply aggregate demand and monetary policy shocks we estima

monetary policy and distribution a segmented markets model of monetary policy is constructed in which a novel feature is goods market segmentation and its relationship to conventional asset market segmentation the implications of the model for the response of prices interest rates consumption labor supply and output to monetary policy are determined as well optimal monetary policy is studied as are the costs of inflation the model features persistent nonneutralities of money relative price effects of increases in the money supply persistent liquidity effects and a negative fisher effect from a money supply increase a friedman rule is in general suboptimal

monetary policy trend inflation and the great moderation an alternative interpretation with positive trend inflation the taylor principle does not guarantee a determinate equilibrium we provide new theoretical results on determinacy in new keynesian models with positive trend inflation and new empirical findings on the federal reserve s reaction function before and after the volcker disinflation to find that i while the fed likely satisfied the taylor principle before volcker the us economy was still subject to self fulfilling fluctuations in the 1970s ii the us economy switched to determinacy during the volcker disinflation and iii the switch reflected changes in the fed s response to macroeconomic variables and the decline in trend inflation jel e12 e23 e31 e32 e52

inequality leverage and crises the paper studies how high leverage and crises can arise as a result of changes in the income distribution empirically the periods 1920 1929 and 1983 2007 both exhibited a large increase in the income share of the rich a large increase in leverage for the remainder and an eventual financial and real crisis the paper presents a theoretical model where these features arise endogenously as a result of a shift in bargaining powers over incomes a financial crisis can reduce leverage if it is very large and not accompanied by a real contraction but restoration of the lower income group s bargaining power is more effective

renegotiation and information revelation over time the case of optimal labor contracts the paper analyzes the issue of commitment in grossman and hart s model of optimal labor contracts under asymmetric information about firm profitability we extend their framework by allowing employment to vary over time at equidistant intervals when both parties can precommit ex ante not to renegotiate the contract this replicates the grossman hart outcome each subperiod when precommitment is not possible information revealed through the contract can create pareto improving renegotiation opportunities and the issue of optimal information revelation arises the paper analyzes the impact of ex post pareto improving renegotiations on the optimal contract

the reaction of household consumption to predictable changes in social security taxes the key implication of rational expectations and the basic life cycle permanent income hypothesis that predictable changes in income have no effect on the growth rate of consumption expenditures is examined this implication is important for understanding the effectiveness and optimal timing of fiscal policy the causes and propagation of business cycles and the effects of income fluctuations on the growth rate of the economy using household level consumption data from the consumer expenditure survey whether expenditures on nondurable goods increase contemporaneously with predictable changes in social security tax withholding is tested it is found that households do change their consumption expenditures in response to the predictable fluctuations in income induced by the social security tax system

who bears aggregate fluctuations and how the consumption of high consumption households is more exposed to fluctuations in aggregate consumption and income than that of low consumption households in the consumer expenditure cex survey the exposure to aggregate consumption growth of households in the top 10 percent of the consumption distribution in the cex is about five times that of households in the bottom 80 percent given real aggregate per capita consumption growth about 3 percentage points less than its historical mean during the past year these figures predict that the ratio of consumption of the top 10 percent to the bottom 80 percent has fallen by about 15 percentage points relative to trend using income data from piketty and saez 2003 we show that the income especially the wage income of rich households is more exposed to aggregate fluctuations so their higher income exposure is a likely contributor to their higher consumption exposure finally we find a striking change in the exposure of the incomes of high income households prior to the early 1980 s the incomes of high income households were not more exposed to aggregate fluctuations thus while high income households currently bear an inordinately large share of aggregate fluctuations this is a recent occurrence this abstract was borrowed from another version of this item

income inequality in the united states 1913 1998 this paper presents new homogeneous series on top shares of income and wages from 1913 to 1998 in the united states using individual tax returns data top income and wages shares display a u shaped pattern over the century our series suggest that the large shocks that capital owners experienced during the great depression and world war ii have had a permanent effect on top capital incomes we argue that steep progressive income and estate taxation may have prevented large fortunes from fully recovering from these shocks top wage shares were flat before world war ii dropped precipitously during the war and did not start to recover before the late 1960s but are now higher than before world war ii as a result the working rich have replaced the rentiers at the top of the income distribution

monetary policy natural resources and federal redistribution can monetary policy shocks induce redistribution across natural resource rich and poor states within a federation we conjecture that resource rich states are capital intensive hence their investment is more responsive to changes in monetary policy consequently contractionary monetary policy shocks e g increases in the interest rate may induce redistribution from resource poor states to resource rich ones via an equalizing federal transfer scheme because investment is reduced more strongly in the latter we test these hypotheses using a panel of u s states covering several decades and find that 1 resource rich states are significantly and persistently more capital intensive 2 contractionary monetary policy shocks induce a relative drop increase in investment federal transfers in resource rich states over the course of four years 3 these patterns are driven by resource induced differences in the capital share in the economy we estimate that a one standard deviation contractionary monetary shock induces within the first year federal redistribution of approximately 2 5 billion from the resource poor to the resource rich states representing about 11 of the total average annual federal transfers received by the latter states

on inflation as a regressive consumption tax abstract evidence on the portfolio holdings and transaction patterns of households suggests that the burden of inflation is not evenly distributed we build a monetary growth model consistent with key features of cross sectional household data and use this framework to study the distributional impact of inflation at the aggregate level our model economy behaves similar to standard monetary growth models within the representative agent abstraction inflation has however important distributional effects since it is effectively a regressive consumption tax thus neglecting the distributional consequences of inflation may prove misleading in assessing the effects of inflation in our economy

interest rate prominence in consumer decision making variations in consumers responsiveness to interest rates across households and over time have important implications for monetary transmission responses from the michigan survey of consumers provide an indication of the degree to which interest rates are a prominent consideration in spending decisions news recollection and financial situations prominence is strongest in housing attitudes increases with income education and homeownership and declined in the great recession rate prominence is associated with stronger responsiveness of consumption attitudes to monetary policy jel d84 d91 e21 e40 e50

monetary policy and wealth inequality over the great recession in the uk an empirical analysis abstract we use detailed micro information at household level from the wealth and assets survey to construct measures of wealth inequality from 2006 to 2018 at the monthly frequency we investigate the dynamic relationship between monetary policy and the evolution of wealth inequality measures our findings suggest that expansionary monetary policy shocks lead to an increase in wealth inequality and contributed significantly to its fluctuations this effect is heterogenous across the wealth distribution with the monetary shock affecting the median household relative to the 10th and 20th percentile by a larger amount than the right tail our results suggest that the shock is transmitted through changes in net property and financial wealth

what can survey forecasts tell us about information rigidities a lot we derive common and conflicting predictions from models in which agents face information constraints and then assess their validity using surveys of consumers firms central bankers and professional forecasters we document that mean forecasts fail to completely adjust on impact to shocks leading to statistically and economically significant deviations from the null of full information the dynamics of forecast errors after shocks are consistent with the predictions of models with information rigidities the conditional responses of forecast errors and disagreement among agents can also be used to differentiate between some of the most prominent models of information rigidities

changes in the federal reserve s inflation target causes and consequences this paper estimates a new keynesian model to draw inferences about the behavior of the federal reserve s unobserved inflation target the results indicate that the target rose from 1 1 4 percent in 1959 to over 8 percent in the mid to late 1970s before falling back below 2 1 2 percent in 2004 the results also provide some support for the hypothesis that over the entire postwar period federal reserve policy has systematically translated short run price pressures set off by supply side shocks into more persistent movements in inflation itself although considerable uncertainty remains about the true source of shifts in the inflation target jel e31 e32 e52

finance inequality nexus the long and the short of it financial development affects income inequality differently in the short and in the long term investigating oecd countries from 1870 2011 we find in the short run an improvement in financial development tends to reduce inequality while in the long run more finance contributes to more inequality the short run effect concurs with theories advocating financial development increases the availability of financial services primarily for the poor however this effect becomes nil within a few years results thus imply that policies aimed at reducing inequality through improving access of the poor to finance need to be carefully designed to ensure longevity of impact

central bank policies and income and wealth inequality a survey this paper reviews recent research on the relationship between central bank policies and inequality a new paradigm which integrates sticky prices incomplete markets and heterogeneity among households is emerging which allows for the joint study of how inequality shapes macroeconomic aggregates and how macroeconomic shocks and policies affect inequality the new paradigm features multiple distributional channels of monetary policy most empirical studies however analyze each potential channel of redistribution in isolation our review suggests that empirical research on the effects of conventional monetary policy on income and wealth inequality yields mixed findings although there seems to be a consensus that higher inflation at least above some threshold increases inequality in contrast to common wisdom conclusions concerning the impact of unconventional monetary policies on inequality are also not clear cut to better understand policy effects on inequality future research should focus on the estimation of general equilibrium models with heterogeneous agents

common and country specific factors in the distribution of real wages abstract we use a dynamic factor model to consider if real wage growth in the us uk and germany at different percentiles of the distribution can be explained by factors that are common across countries or specific to each country our results suggest that common factors explain a large proportion of the movement in wages when considering the left tail of the distribution indicating that shocks that are common across countries are important for low wage households

how corruption may corrupt abstract the incidence of corruption appears to vary strongly across societies even for comparable activities the model highlights how the profitability of bureaucratic corruption may be related to its frequency and points toward a few mechanisms that can be used in explaining the stylized facts of varying incidence of corruption there might be multiple self fulfilling equilibria levels of corruption even when both supply and demand of corrupt acts are considered

unconventional monetary policy and inequality is japan unique unconventional monetary policy ump influences inequality through two channels that work in opposite directions a labour market channel more employment higher wages and a financial market cha

no job no money no refi frictions to refinancing in a recession we study how employment documentation requirements and out of pocket closing costs constrain mortgage refinancing these frictions which bind most severely during recessions may significantly inhibit monetary policy pass through to study their effects on refinancing we exploit a federal housing administration policy change that excluded unemployed borrowers from refinancing and increased others out of pocket costs substantially these changes dramatically reduced refinancing rates particularly among the likely unemployed and those facing new out of pocket costs our results imply that unemployed and liquidity constrained borrowers have a high latent demand for refinancing cyclical variation in these factors may therefore affect both the aggregate and distributional consequences of monetary policy

heterogeneous consumers segmented asset markets and the real effects of monetary policy this paper proposes a novel mechanism by which changes in the distribution of money holdings have real effects specifically i develop a flexible price model of segmented asset markets that generates real aggregate effects of monetary policy through the dependence of optimal markups on the heterogeneity of money holdings because varieties of consumption bundles are purchased sequentially newly injected money disseminates slowly throughout the economy via second round effects the model predicts a short term inflation output trade off a liquidity effect countercyclical markups and procyclical wages after monetary shocks among other correlations of financial variables it also reproduces the empirical negative relationship between changes in the money supply and markups

the drivers of income inequality in rich countries rising income inequality has recently come centre stage as a core societal concern for rich countries the diagnosis of the forces driving inequality upwards and their relative importance remains hotly contested notably with respect to the roles of globalization versus technology and of market forces versus institutions and policy choices this survey provides a critical review and synthesis of recent research the focus is on income inequality across the entire distribution rather than only on what has been happening at the very top we pay particular attention to including what has been learned from the analysis of micro data to ensuring that the coverage is not unduly us centric and to analyses of the interrelations between the different drivers of inequality the marked differences in inequality trends across countries and time periods reflect how global economic forces such as globalisation and technological change have interacted with differing national contexts and institutions major analytical challenges stand in the way of a consensus emerging on the relative importance of different drivers in how income inequality has evolved in recent decades

the price effects of monetary shocks in a network economy abstract empirical evidence shows monetary shocks have two temporary effects on the distribution of prices one the dispersion of cross section of prices increases in response to monetary shocks two some prices change in the wrong direction some prices decrease in response to positive monetary shocks and increase in response to negative monetary shocks we present a model that generates the two effects of monetary shocks on the distribution of prices as an out of equilibrium phenomena firms are related to each other through a production network monetary shocks change the working capital of a subset of firms and percolate to other firms through buyer seller linkages price dispersion increases because the percolation of a monetary shock through the production network causes prices to differentially deviate from their steady state values some prices change in the wrong direction because a shift in one firm s demand causes a shift in another firm s supply and vice versa thereby generating complicated chains of bi directional price changes monetary shocks can significantly disturb relative prices even when all prices are fully flexible

innocent bystanders monetary policy and inequality abstract we study the effects of monetary policy shocks on and their historical contribution to consumption and income inequality in the united states since 1980 as measured by the consumer expenditure survey contractionary monetary policy systematically increases inequality in labor earnings total income consumption and total expenditures furthermore monetary policy shocks account for a non trivial component of the historical cyclical variation in income and consumption inequality using detailed micro level data on income and consumption we document some of the different channels via which monetary policy shocks affect inequality as well as how these channels depend on the nature of the change in monetary policy

has u s monetary policy changed evidence from drifting coefficients and real time data despite the large amount of empirical research on monetary policy rules there is surprisingly little consensus on the nature or even the existence of changes in the conduct of u s monetary policy three issues appear central to this disagreement 1 the specific type of changes in the policy coefficients 2 the treatment of heteroskedasticity and 3 the real time nature of the data used this paper addresses these issues in the context of forwardlooking taylor rules with drifting coefficients the estimation is based on real time data and accounts for the presence of heteroskedasticity in the policy shock the findings suggest important but gradual changes in the rule coefficients not adequately captured by the usual split sample estimation in contrast to orphanides 2002 2003 i find that the fed s response to the real time forecast of inflation was weak in the second half of the 1970s perhaps not satisfying taylor s principle as suggested by clarida gali and gertler 2000 however the response to inflation was strong before 1973 and gradually regained strength from the early 1980s onward moreover as in orphanides 2003 the fed s response to real activity fell substantially and lastingly during the 1970s

the heterogeneous impact of monetary policy on the us labor market abstract we empirically investigate the role of central banks in the context of heterogeneous labor markets jobless recoveries and job polarization specifically we estimate the effect of monetary policy on the us labor market using disaggregated time series based on large scale survey data the impact of interest rate changes on unemployment in 32 occupation groups is explored in a bayesian factor augmented vector autoregression framework the results suggest largely heterogeneous impacts across various occupation groups this heterogeneity can be explained by differential task profiles of the workers in their respective occupations workers with tasks that are easily automated or offshored as well as workers at the bottom of the skill distribution are disproportionately affected following a monetary policy shock this implies that labor market participants that are highly vulnerable to structural developments such as skill biased technological change and the globalization of labor markets are also most sensitive to conventional monetary policy measures from a policy perspective we conclude that central banks are unlikely to be able to take on a stabilizing role in the context of labor market polarization

monetary policy inequality and political instability voters in the industrialised countries are increasingly expressing dissatisfaction by dissenting from the established political parties and candidates based on the concepts of justice by hayek rawls and buchanan we argue that the growing dissatisfaction is rooted in the asymmetric pattern of monetary policies since the mid 1980s for two reasons first the structurally declining interest rates and the unconventional monetary policy measures have granted privileges to specific groups second the increasingly expansionary monetary policies have negative growth effects which have reduced the scope for compensation of the ones excluded from the privileges as a result the acceptance of the prevailing economic and political order is undermined and political instability increases

banks leverage behaviour in a two agent new keynesian model abstract we study the distributive effects of a negative shock to banks assets in a saver capitalist model we analyze how this kind of heterogeneity affects macroeconomic variables and the distribution between savers and capitalists through banks leverage procyclicality the distributive effects are non favourable to savers and long lasting lower risk aversion of capitalists strengthens and lengthens the procyclicality of leverage leading to a lower decrease of savers income and consumption whilst stricter regulatory requirements are favourable to savers a tougher inflation targeting is unfavourable to savers the model is robust to the combined introduction of labour market frictions and hysteresis which together generate an amplification and lengthening of the recessionary and distributive effects unfavourable to savers

perhaps the 1970s fomc did what it said it did briefing forecasts prepared for the federal open market committee fomc are used to estimate changes in the design of us monetary policy and in the implied policy target for inflation from 1970 through 1997 both estimated policy rate responses and fomc transcripts are consistent with intermediate targeting of monetary aggregates throughout the great inflation of the 1970s the unpublished fomc targets for m1 growth are tabulated empirical results support an effective inflation target of roughly 7 in the 1970s and 3 thereafter a notable difference in the 1970s monetary policies of the us and germany is the absence of explicit public objectives for us long run inflation

the role of automatic stabilizers in the u s business cycle most countries have automatic rules in their tax and transfer systems that are partly intended to stabilize economic uctuations this paper measures how eective they are at lowering the volatility of u s economic activity we identify seven potential stabilizers in the data and include four theoretical channels through which they may operate in a business cycle model calibrated to the u s data the model is used to compare the volatility of output in the data with counterfactuals where some or all of the stabilizers are shut down our rst nding is that proportional taxes like sales property and corporate income taxes contribute little to stabilization our second

price stickiness along the income distribution and the effects of monetary policy abstract monetary shocks have distributional consequences if they affect relative prices across goods consumed by different households we document that the prices of the goods consumed by high income households are stickier and less volatile than those of the goods consumed by middle income households following a monetary policy shock the estimated impulse responses of high income households consumer price indices are about one third smaller than those of the middle income households we evaluate the implications of these findings in a quantitative multi sector new keynesian model featuring heterogeneous households the distributional consequences of monetary policy shocks are large and similar to those in the econometric model