Monetary policy and the top one percent: Evidence from a Century of Modern Economic History
Mehdi El Herradi, Aurélien Leroy  1  
1 : Larefi
Université de Bordeaux (Bordeaux, France)

This paper examines the distributional implications of monetary policy from a long-run perspective, with data spanning a century of modern economic history in 12 advanced economies. We employ two complementary empirical methodologies for estimating the dynamic responses of the top 1% income share to a monetary policy shock: vector auto-regressions and local projections. The monetary policy shocks are assessed via different approaches. We notably exploit the implications of the macroeconomic policy trilemma to identify exogenous variations in monetary conditions. This offers a genuine orthogonal perspective to capture fluctuations in short term interest rates unrelated to home economic conditions. The obtained results indicate that expansionary monetary policy strongly increases income inequality and vice-versa. These results have important implications for monetary policy coordination and the design of economic policies that aim at reducing income inequality.


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