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Monetary policy and the top one percent

Working Paper 2020-519


While a growing line of research has assessed the distributional consequences of monetary policy, most of these studies rely on survey-based estimates of inequality and feature a shorter time coverage. This paper examines the distributional implications of monetary policy on top income shares in 12 advanced economies between 1920 and 2015. We exploit the implications of the macroeconomic policy trilemma with an external instrument approach to identify exogenous variations in monetary conditions. The obtained results indicate that contractionary monetary policy strongly decreases the share of national income held by the top one percent and vice versa, irrespective of the state of the economy. Our findings also suggest that the effect of monetary tightening on top income shares is likely to be channeled via lower asset prices.

Authors: Mehdi El Herradi , Aurelien Leroy.

Keywords: Monetary policy, Top income shares, Macroeconomic Policy Trilemma, External Instrument.
JEL: E25, E42, E52.