Income Inequality and Monetary Policy: An analysis on the Long Run Relation

Karen Davtyan

No 201604, IREA Working Papers from University of Barcelona, Research Institute of Applied Economics

Abstract: The distributional effect of monetary policy is estimated in the case of the USA. In order to identify a monetary policy shock, the paper employs contemporaneous restrictions with ex-ante identified monetary policy shocks as well as log run identification. In particular, a cointegration relation has been determined among the considered variables and the vector error correction methodology has been applied for the identification of the monetary policy shock. The obtained results indicate that contractionary monetary policy decreases income inequality in the country. These results could have important implications for the design of policies to reduce income inequality by giving more weight to monetary policy.

Keywords: income inequality; monetary policy; cointegration; identification. JEL classification: C32; D31; E52 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2016-04, Revised 2016-04
New Economics Papers: this item is included in nep-cba and nep-mon
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Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:ira:wpaper:201604

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