18. February 2021

USA: Gains from accommodative monetary policy unevenly distributed USA: Gains from accommodative monetary policy unevenly distributed

Research team from the Department of Economics evaluates income and wealth data from the United States. White households benefit significantly more from accommodative monetary policy than black households.* This is what researchers from the ECONtribute: Markets & Public Policy Cluster of Excellence found.

USA Monetary Policy
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With movements such as Black Lives Matter, thousands around the world drew attention to the persistent inequality between black and white people and called on fellow citizens, but also politicians, to take action. Politicians such as U.S. President Joe Biden stress that monetary policy should play an important role in reducing racial economic inequality. However, the profits from purchase programs and low interest rates, as now during the coronavirus crisis, are primarily benefiting white citizens. This is what Alina Bartscher, Moritz Kuhn and Moritz Schularick, researchers of the Department of Econonics, together with Paul Wachtel (New York University), concluded from their analysis of American income and wealth data.

Unemployment declines, wealth gaps grow

The researchers investigated the distributional effects of monetary policy in the U.S.. They analyzed how differently a change in central bank interest rates affects the unemployment rate and assets, for example shares and houses belonging to black and white households.

If the central bank lowers interest rates by one percentage point, the unemployment rate of black households drops by about 0.2 percentage points more than that of white households, and the income gap becomes smaller. The reason: Due to lower interest rates, businesses invest and hire more people, which benefits lower-income households in particular. At the same time, however, wealth inequality is widening, as white U.S. citizens own more financial assets and benefit significantly more from rising asset values. They achieve asset gains of about $25,000 after three years - five times as much as black households.

"The magnitude of these effects surprised us," says Moritz Kuhn. The employment effects are significantly lower than the wealth effects in the long term. It seems to be the case that with their monetary policy instruments, central banks might not be able to reduce racial income inequality without increasing wealth inequality. In the future, it might be necessary to discuss what role central banks should play in this conflict of interests.

Link to the study: https://www.econtribute.de/RePEc/ajk/ajkdps/ECONtribute_061_2021.pdf

Background Information: Wealth inequality between black and white citizens

Black households in the U.S. earn significantly less on average than white households and own fewer assets. The median assets of a white household are $184,390, nearly nine times that of black U.S. citizens. Their median income is $38,688, about 58 percent of the median income of white households. (Survey of Consumer Finances 2019)

*The division into black and white households is based on participants' own data in the Federal Reserve Board's “Survey of Consumer Finances 2019”, whose data the study adopts.


The work received financial support from the ECONtribute Cluster of Excellence at the Universities of Bonn and Cologne, funded by the German Research Foundation as part of the Excellence Strategy of the German Federal and State Governments.


Content contact:

Prof. Moritz Kuhn
ECONtribute, University of Bonn
Tel. +49 228 73-62096

Press and communication:

Katrin Tholen
Tel. +49 228 73 7808

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