Impact of Monetary Policy on the Level of Economic Inequality in the United States

• Main Author: M. L. Dorofeev
• Format: Article
• Language: English
• Published: MGIMO University Press 2020-11-01
• Series: Vestnik MGIMO-Universiteta
• Subjects: wealth inequality, economic inequality, monetary policy, taxes, interest rates, monetary policy, government regulation
• Online Access: https://www.vestnik.mgimo.ru/jour/article/view/1853

Abstract: After the reform of the world monetary system in 1971, the competition between countries for the global market is taking place in completely new conditions. Monetary and fiscal authorities have accumulated vast experience in regulating the economy and strengthening country competitive advantages through complex mechanisms of quantitative easing, foreign exchange rates manipulation, increasing debts, etc. Overcoming the consequences of the financial crises of the 21st century every time forces monetary regulators to implement increasingly radical measures in order to save the economy by injecting enormous amounts of liquidity into the market to buy out bad corporate debts as well as government debt securities. At the same time, the questions of how monetary policy affects the level of economic inequality and who is its beneficiary are becoming more relevant.The article seeks to analyze the impact of changes in monetary policy parameters on wealth inequality in the United States. Given the cyclical nature of economic inequality, the main method of research was chosen as a graphical statistical analysis, since it allows to identify trends effectively and keep in focus more than 100-year picture of changes in the analyzed indicators. For a more holistic picture, the dynamics of economic wealth inequality level were compared not only with key indicators of monetary policy, but also with the dynamics of marginal tax rates in US.One conclusion of the research is that wealth inequality depends more on fiscal adjustment and marginal tax rates than on monetary factors. Inadequate marginal income and inheritance tax rates are factors of rising of wealth inequality in US. Changing of monetary system settings also influences on the level of wealth inequality, because it affects the valuation of financial assets, and therefore the wealth of the richest people in US. Another important conclusion is the idea that the new monetary policy, despite all fears that it is a source of growing economic inequality, is acceptable with marginal income and inheritance tax rates of about 60% and with effective macroprudential regulation of US economy.