Ultra-expansionary monetary policy and inequalities

The coronavirus crisis will once again lead to a considerable increase in the size of central banks’ balance sheets. It is interesting to try to assess the effects of this ultra-expansionary monetary policy on different inequalities. In the short term, it reduces income inequality through two mechanisms: it drives down interest rates, which is positive for borrowers and negative for lenders (who on average have high incomes); it enables governments to implement expansionary fiscal policies that benefit the most vulnerable part of the population; In the medium term, it increases wealth inequality by pushing up asset prices: equities and even more real estate. As is well known, the cost of ultra-expansionary monetary policies is financial instability; if it takes the form of rising asset prices, it is associated with rising wealth inequality.