BPEA | Spring 2022

Monetary policy and racial inequality

Toy figures standing on stacks of coins.
Editor's note:

The paper summarized here is part of the Spring 2022 edition of the Brookings Papers on Economic Activity (BPEA), the leading conference series and journal in economics for timely, cutting-edge research about real-world policy issues. The conference draft of the paper was presented at the Spring 2022 BPEA conference. The final version was published in the Spring 2022 issue by Johns Hopkins University Press. The recording of the conference session can be found below. Read all papers published in this issue here. Submit a proposal to present at a future BPEA conference here.

Monetary policy seems ill-suited to the task of reducing racial economic inequities, suggests a paper discussed at the Brookings Papers on Economic Activity (BPEA) conference on March 24, 2022.

The authors—Alina K. Bartscher of Danmarks Nationalbank, Moritz Kuhn of the University of Bonn, Moritz Schularick of Sciences Po Paris and the University of Bonn, and Paul Wachtel of New York University—modeled the effects of an unanticipated cut in interest rates on the incomes and wealth of white and Black households.

They found that easier monetary policy increases employment, and thus the income, of the average Black household more than for the average white household. But, at the same time, easier monetary policy increases the wealth (such as stocks and real estate) of white households more than for Black households.

“The reduction in the earnings gap pales in comparison to the effects on the wealth gap,” they write in Monetary Policy and Racial Inequality. “Our analysis therefore does not bode well for the suggestion made by politicians and central bankers that a more accommodative monetary policy helps alleviate racial inequalities.”

A more accommodative monetary policy lowers unemployment and increases income, especially for low-income and minority workers, who would otherwise become or have remained unemployed. That’s consistent with a revised monetary policy strategy announced by the Federal Reserve in August 2020 that emphasized that its maximum employment goal was “broad-based and inclusive.”

But the paper finds that the overall effects on income disparities are small. Over five years, the cumulative earnings gain for the average Black household is $134 more than for the average white household.

The effects on the wealth gap between Black and white households are large because white households are more likely than Black households to own rather than rent their homes and far more likely to own stocks, either directly or through retirement accounts. Moreover, the average white household has substantially more assets than the average Black household. The disproportionate wealth increase suggests that consumption increases by almost $500 more for white household than for Black households, about four times the relative earnings gain for Black households.

The authors emphasize that their finding “does not mean achieving racial equity should not be a first-order objective for economic policy.”

“We strongly think it should,” they write. “But the tools available to central banks might not be the right ones, and could possibly be counter-productive.”

The Federal Reserve does have an important role in bringing public attention to wealth and income gaps and influencing fiscal policy and the private sector, they write.

“To its credit, the Fed’s research efforts on inequity have moved the profession and helped put these things in the forefront,” Wachtel said in an interview with The Brookings Institution.



David Skidmore authored the summary language for this paper. Becca Portman assisted with data visualization.


Bartscher, Alina K., Moritz Kuhn, Moritz Schularick, and Paul Wachtel. 2022. “Monetary Policy and Racial Inequality.” Brookings Papers on Economic Activity, Spring. 1-47.

Darity, William A. Jr., “Comment on ‘Monetary Policy and Racial Inequality’.” Brookings Papers on Economic Activity, Spring. 48-52.

Moll, Benjamin. “Comment on ‘Monetary Policy and Racial Inequality’.” Brookings Papers on Economic Activity, Spring. 52-59.


This research was supported by the Deutsche Forschungsgemeinschaft (DFG) under Germany’s Excellence Strategy – EXC 2126/1 – 39083886. Alina Kristin Bartscher is an employee of Danmarks Nationalbank. Other than the aforementioned, the authors did not receive financial support from any firm or person for this article or from any firm or person with a financial or political interest in this article. They are currently not an officer, director, or board member of any organization with an interest in this article.