Beschreibung:
This paper analyses the effects of quantitative easing (QE) on households’ income and consumption inequality in the Euro Area.Using a SVAR with high frequency identification, I show that an identified QE shock is redistributive and expansionary. To rationalize the empirical findings, I build a New Keynesian DSGE model with household heterogeneity and financial frictions. Bond purchases increase aggregate demand and benefit financially restricted households more than investors, due to the dominance of QE's indirect effects and the foregoing term spread between bonds and reserves. Thus, income and consumption inequality decline in line with the evidence. This result changes when considering a subset of Euro Area countries with low asset markets participation and a flexible wage setting: QE then becomes contractionary and increases inequality. As it is analytically shown, this result is a product of the profit generated income effects which are active in a flexible wage NK setting