Income Inequality as Long-term Conditioning Factor of Monetary Transmission to Bank Interest Rates in EA Countries

Tomas Domonkos, Boris Fisera and Mária Širaňová

No 2021/15, Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies

Abstract: In this paper we investigate the effect of income inequality on the transmission of standard and unconventional monetary policy shocks to bank loan rates. We hypothesize that income inequality might encapsulate important characteristics of credit market demand. We use an interacted panel error correction model to examine a set of EA countries over the years 2008-2016. Our findings suggest that higher income inequality hinders the transmission of standard monetary policy to consumer loans and limits the use of unconventional monetary policy in the housing loans segment. Conversely, more unequal societies are characterized by stronger monetary transmission in the small firm loans segment.

Keywords: interest-rate pass-through; interacted PMG; income inequality; standard monetary policy; unconventional monetary policy (search for similar items in EconPapers)
JEL-codes: D31 E21 E52 E58 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2021-05, Revised 2021-05
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac, nep-mon and nep-tra
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Persistent link: https://EconPapers.repec.org/RePEc:fau:wpaper:wp2021_15

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