Distributional impacts of low for long interest rates

Francisco Villarreal and Jeremy Kronick

Estudios y Perspectivas – Sede Subregional de la CEPAL en México from Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL)

Abstract: This paper asks whether tepid inflation in Canada since the financial crisis can in part be explained by the effects of monetary policy on inequality. Using different structural vector autoregression models we show that expansionary monetary policy post-crisis has offset otherwise falling inequality through the shifting of resources away from lower-income individuals, which in general have higher marginal propensities to consume. As a result, aggregate demand has not risen as much as it otherwise would have, leading to a more muted inflationary response. Our results suggest that failure to account for the heterogeneity of consumption responses across the income distribution could lead to an overestimation of the magnitude of inflation’s response to a monetary policy shock.

Date: 2019-07-18
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (2)

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http://repositorio.cepal.org/handle/11362/44666

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Working Paper: Distributional Impacts of Low for Long Interest Rates (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:ecr:col031:44666

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