Figure E.2 shows that a US interest‑rate tightening shock has a larger effect on foreign economies when inequality is higher. With a 20 % rise in the Gini coefficient, domestic demand, US exports and labor supply in the two countries respond more strongly in successive quarters. A second panel displays country 2’s GDP, consumption, inflation and exchange‑rate movements under the same scenarios, revealing a deeper GDP contraction and a weaker exchange‑rate appreciation when inequality is higher. The third panel reports welfare measured in consumption equivalents for three policy settings: baseline, higher‑inequality and higher foreign‑bond holding cost. The results indicate that both greater inequality and higher bond‑cost constraints reduce welfare benefits from optimal monetary policy. The authors note no conflicts of interest and provide contact details. The paper is freely available but requires explicit reproduction permission.
© European Central Bank, 2025.
Summary derived from the ECB website (https://www.ecb.europa.eu ).
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