Title: Does the FED care about income inequality? A quantitative examination

Authors: Stuart J. Fowler; Jennifer J. Fowler

Addresses: Department of Economics, Middle Tennessee State University, MTSU Box 27, Murfreesboro, Tennessee, 37132, USA ' Jack C. Massey College of Business, Belmont University, Nashville, Tennessee, 37212, USA

Abstract: We model various policy rules in settings that have non-trivial impacts on inequality. The policy rule that best describes the data is one that incorporates the Gini as an important component. In this case, a temporary and unexpected change to a more accommodative policy leads to a temporary improvement in inequality. Additionally, when there is deterioration in inequality, policy becomes more accommodative with a lag. For most calibrations, the reactionary policy rule benefits the workers at the cost of the capitalists; lifetime consumption of the worker is made smoother which increases their elasticity for labour resulting in a destabilised economy that is costly to the capital owners.

Keywords: inflation; income distribution; heterogeneous agents; inequality; accommodative monetary policy; VAR; Gini.

DOI: 10.1504/IJMEF.2017.084211

International Journal of Monetary Economics and Finance, 2017 Vol.10 No.2, pp.183 - 205

Received: 12 Jun 2015
Accepted: 21 Feb 2016
Published online: 21 May 2017 *

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