Monetary Policy and Racial Inequality
— February 10, 2021
By Alina Kristin Bartscher, Moritz Kuhn, Moritz Schularick, Paul Wachtel
A prominent line of thinking is that an accommodative monetary policy lowers unemployment rates and increases labour income for marginal workers, who are oftentimes low-income and minority households. This is what Coibion et al. (2014) call the earnings channel of monetary policy. More specifically, Carpenter and Rodgers (2004) show that a monetary policy accommodation reduces the gap between the unemployment rates of black and white households.
Yet at the same time, monetary policy has portfolio effects through its impact on asset prices. Asset price changes should affect the wealth distribution if portfolios differ systematically between black and white households, as is the case (Figure 1). Only a third of black households hold equity and less than half own a home. As a result, monetary policy that increases asset prices potentially has different effects on the portfolios of black and white households.
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Paul Wachtel is a Professor of Economics.