Inequality and transmission channels of monetary policy in a macro agent-based model

Abstract

This study examines the impact of monetary policy on income and wealth inequality through several transmission channels, including income composition, earnings heterogeneity, saving redistribution, portfolio composition, and household debt. Using an agent-based stock-flow-consistent model, the study finds that a permanent increase in the policy rate raises unemployment and reduces firm dividends, hitting net debtors harder than net savers and worsening income inequality. In addition, the savings redistribution channel contributes to the increase in the income of net savers. Furthermore, the study shows that a higher policy rate also leads to lower asset values accumulation, especially for the poorest households, thereby exacerbating wealth inequality through the portfolio composition channel.