The poor, the rich, and the credit channel of monetary policy

Monetary policy can have contrasting effects on economic inequality via distinct channels. We examine the effect working via the credit channel, whereby monetary policy induces heterogeneous access to credit for business owners based on their wealth. Using unique data on business loan applications from small firms, we find that monetary expansions increase the bank's likelihood to approve loan applications, particularly so for low-wealth entrepreneurs, translating to higher future income and wealth. Survey data from 19 euro area countries on loan applications by SMEs confirms these findings, and shows that the effect transmits especially via weakly capitalized and less liquid banks.