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Press Release

Monetary policy may have some redistributive consequences, but their magnitude seems to be small, says Cleveland Fed economist

Pedro Amaral, a senior research economist at the Federal Reserve Bank of Cleveland, examines the link between conventional monetary policy and inequality. He says a review of the literature and the evidence seems to point to a modest influence at best. Amaral also examines the claim that unconventional monetary policies have led to increases in inequality; he argues that the evidence is still inconclusive.

Reviewing the main theoretical channels that have been suggested by which monetary policy might affect inequality, such as the inflation tax channel and the savings redistribution channel, Amaral says that no one channel by itself provides a clear picture of the relationship. “Crucially, each depends on the distribution of population characteristics and the ways in which these are associated with different types of income as well as assets and liabilities,” says the researcher.

Amaral says the complexity of the mechanisms linking monetary policy and inequality stems from the fact that they depend not only on economic variables that constantly change for reasons other than monetary policy, but importantly, also on the distributions of income and wealth themselves, which are in turn heavily influenced by demographics.

According to Amaral, the more meaningful changes in inequality occur over longer periods of time than the horizon at which monetary policy operates and are most likely the result of structural changes.

“I do not mean to argue that monetary policy has no effect on inequality,” says Amaral, “but whatever that is, it is likely to be small, at least relative to the effect of more fundamental forces, like education, globalization, demographics, technological change, or corporate trends in compensation.”

Read Monetary Policy and Inequality

Federal Reserve Bank of Cleveland

The Federal Reserve Bank of Cleveland is one of 12 regional Reserve Banks that along with the Board of Governors in Washington DC comprise the Federal Reserve System. Part of the US central bank, the Cleveland Fed participates in the formulation of our nation’s monetary policy, supervises banking organizations, provides payment and other services to financial institutions and to the US Treasury, and performs many activities that support Federal Reserve operations System-wide. In addition, the Bank supports the well-being of communities across the Fourth Federal Reserve District through a wide array of research, outreach, and educational activities.

The Cleveland Fed, with branches in Cincinnati and Pittsburgh, serves an area that comprises Ohio, western Pennsylvania, eastern Kentucky, and the northern panhandle of West Virginia.

Media contact

Doug Campbell,, 513.455.4479