The Effect of Monetary Policy Shocks on Income Inequality across US states

Makram El-Shagi and Steven Yamarik ()
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Steven Yamarik: Department of Economics, California State University Long Beach, CA

No 2024/4, CFDS Discussion Paper Series from Center for Financial Development and Stability at Henan University, Kaifeng, Henan, China

Abstract: This paper examines the impact of Federal Reserve policy on income inequality across US states. We use the local projections method of Jordà to estimate impulse response functions for each state. We find that a restrictive monetary policy increases income inequality in almost all states, but with different magnitudes. Subsequent panel analysis examines the possible transmission mechanisms that can account for these differences. Our empirical results confirm the theoretical predictions – inequality is increased by higher inflation, home ownership, and earnings in the finance, insurance and real estate (FIRE) sector; but decreased by higher housing prices, unionization rates, educational attainment and minimum wage.

Keywords: monetary policy; inequality; US states; local projections (search for similar items in EconPapers)
JEL-codes: D31 D63 E52 R19 (search for similar items in EconPapers)
Date: 2024-03
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fdg, nep-mon and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:fds:dpaper:202404

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