Monetary policy and inequality pre- and post-redistribution

This study highlights the importance of analysing the relationship between monetary policy and inequality, both before and after redistribution, in order to better understand the socio-economic and fiscal impacts of monetary policy. We focus on the period from 1995 to 2023, during which monetary policy reached unprecedented levels of accommodation in modern economic history. Using the wavelet coherence approach, our results show that this relationship is complex and may vary over time and across countries. Monetary easing, particularly during periods of economic stress, notably in the early 2000s and the 2008 financial crisis, and quantitative easing, often increased pre-redistribution inequality in most countries. The main driver of increased pre-redistribution inequality during QE periods is the wealth channel, where the appreciation of asset prices disproportionately benefits higher-income households. The effect on post-redistribution inequality appears to be more heterogeneous and potentially dependent on the strength of fiscal redistribution policies. In some countries, such as France and Finland, monetary easing has mitigated or even reduced inequality, while in others, such as Germany and Japan, it has been accompanied by an increase in inequality.