Abstract: This paper develops a novel framework for business-cycle analysis in the Euro-area based on the distinction between necessity and discretionary spending as well as their associated industries. We apply our approach to quantify the heterogeneous effects of monetary policy, uncovering significant new regularities. Consumer spending, employment, corporate profits, stock returns and dividend payments exhibit greater cyclicality and greater sensitivity to monetary policy in discretionary industries, while prices respond more in sectors producing necessities. Wages, however, display limited sectoral asymmetry. Discretionary industries are characterized by a substantially higher concentration of hand-to-mouth workers, particularly among lower earners. Only consumer prices in necessity sectors are a significant leading indicator for GDP, whereas only employment rates in discretionary industries help predict HICP inflation. We show that a calibrated theoretical model with spending heterogeneity and labour market heterogeneity is consistent with these findings. We use the model to revisit the design of optimal monetary policy. We find that the European Central Bank can improve welfare by responding mostly to inflation in discretionary spending; doing so mitigates the adverse effects of recessions on hand-to-mouth workers and thus stabilizes aggregate demand and headline inflation more effectively. 

Abstract: We study how bank capital regulation shapes the transmission of quantitative easing (QE) to borrowers. Exploiting differences in exposure to post-crisis stress tests across U.S. banks during the Federal Reserve's asset purchases, and using granular loan-rate data, we find that stress-tested banks reduced mortgage rates more but increased consumer loan rates more. These effects are strongest for banks required to raise the most capital and those most exposed to the Fed's mortgage-backed security purchases. An estimated model shows that capital-constrained banks reallocate lending toward mortgages, whose funding costs QE lowers, and away from consumer credit. Capital regulation thus redirects monetary stimulus across credit markets.   

Abstract: I study the impact of monetary policy on wealth inequality in the US. Empirically, an exogenous monetary tightening results in a redistribution of wealth from the middle class to top wealth holders: six years after a 1% exogenous increase in the real interest rate, the wealth share of the top decile of the wealth distribution rises by 4%, while that of the 50-90% wealth holders drops by 6%. This effect is largely driven by heterogeneous capital gains across the wealth distribution. Following a 1% monetary tightening, the stock-to-house price ratio increases by up to 17.4% after 6 years, benefiting wealthy households with substantial stock and business equity holdings more than middle-class households, who primarily hold housing. A back-of-the-envelope calculation shows that the asset pricing channel is quantitatively relevant in explaining the response of wealth shares to monetary policy shocks.  A heterogeneous agent model incorporating capital, housing, and mortgage debt replicates these findings, underscoring also the amplification role of borrowing constraints tied to real estate values for the distributional impact of monetary policy through asset price dynamics.