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Asset purchases, limited asset markets participation and inequality

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  • Tsiaras, Stylianos

Abstract

This paper analyses the effects of quantitative easing (QE) on households' income and consumption inequality in the Euro Area. Using a SVAR with high frequency identification, I show that an identified QE shock is redistributive and expansionary. To rationalize the empirical findings, I build a New Keynesian DSGE model with household heterogeneity and financial frictions which explains the empirical results and provides insights on the inequality channel. Bond purchases increase aggregate demand and benefit financially restricted households more than investors, due to the dominance of QE's indirect effects and the foregoing term spread between bonds and reserves. Thus, income and consumption inequality decline in line with the evidence.

Suggested Citation

  • Tsiaras, Stylianos, 2023. "Asset purchases, limited asset markets participation and inequality," Journal of Economic Dynamics and Control, Elsevier, vol. 154(C).
    • Handle: RePEc:eee:dyncon:v:154:y:2023:i:c:s0165188923001276
    DOI: 10.1016/j.jedc.2023.104721
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    Cited by:

    1. Krenz, Johanna & Tsiaras, Stylianos, 2024. "Household inequality and the transmission of QE in euro area countries," WiSo-HH Working Paper Series 83, University of Hamburg, Faculty of Business, Economics and Social Sciences, WISO Research Laboratory.
    2. Paul Levine & Maryam Mirfatah & Joseph Pearlman & Stylianos Tsiaras, 2023. "Optimal Liquidity Provision and Interest Rate Rules: A Tale of Two Frictions," School of Economics Discussion Papers 1323, School of Economics, University of Surrey.

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    More about this item

    Keywords

    Quantitative easing; Inequality; Financial participation; Heterogeneity; DSGE; SVAR; External instrument;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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