On the Effects of Monetary Policy Shocks on Income and Consumption Heterogeneity

In this paper we use the functional vector autoregression (VAR) framework of Chang, Chen, and Schorfheide (2024) to study the effects of monetary policy shocks (conventional and informational) on the cross-sectional distribution of U.S. earnings (from the Current Population Survey), consumption, and financial income (both from the Consumer Expenditure Survey). We find that a conventional expansionary monetary policy shock reduces earnings inequality, in large part by lifting individuals out of unemployment. There is a weakly positive effect on consumption inequality and no effect on financial income inequality, but credible bands are wide.