The recent Stiglitz commentary on monetary policy and inequality has provoked several responses from Karl Smith and Tyler Cowen. I find their responses to be broadly correct, and get to the fact that monetary policy is not supposed to be a panacea; rather, it helps restabilize conditions to allow other adjustments to be implemented with less pain. Given Evan Soltas' recent post on monetary policy and poverty, it seems dubious that monetary policy, in and of itself, is the root cause of inequality and the skyboxing of society.
Funnily enough, as I was flipping through new NBER working papers, there was a paper testing the empirics of the monetary policy-inequality hypothesis. What do the authors find?
We study the effects and historical contribution of monetary policy shocks to consumption and income inequality in the United States since 1980. Contractionary monetary policy actions systematically increase inequality in labor earnings, total income, consumption and total expenditures. Furthermore, monetary shocks can account for a significant component of the historical cyclical variation in income and consumption inequality. Using detailed micro-level data on income and consumption, we document the different channels via which monetary policy shocks affect inequality, as well as how these channels depend on the nature of the change in monetary policy.
Et tu, Stiglitz?