Monetary policy shocks and their effects across the wealth distribution: evidence from new European data

We use new data on the distribution of wealth in the euro area and employ panel local projections to estimate the different impact of ECB monetary policy shocks on households across the wealth distribution. We look at how policy affects the composition of their balance sheets, their investment decisions, and overall wealth inequality. We find that in response to a contractionary shock, poorer households display a substantial decline in their assets and a reduction in their debt. Conversely, the balance sheet of the very wealthiest shows the opposite evolution, ultimately leading to an increase in overall wealth inequality. Evidence also suggests that the investment behaviour of poorer and wealthier households differs in response to the shock. Our results further indicate that contractionary shocks lead to a shift in balance sheet composition towards housing assets across the whole wealth distribution, at the expense of financial assets.