Income-specific inflation rates and the effects of monetary policy: the case of North Macedonia

Biljana Jovanovic () and Marko Josimovski ()
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Biljana Jovanovic: National Bank of the Republic of North Macedonia
Marko Josimovski: National Bank of the Republic of North Macedonia
Authors registered in the RePEc Author Service: Biljana Jovanovikj

No 2021-01, Working Papers from National Bank of the Republic of North Macedonia

Abstract: In this paper, we investigate the effects of monetary policy concerning the inflation rates specific for each income group of households. We find that the prices specific for high-income households are generally more rigid and less volatile compared to the prices specific for middle and lower-income households. This means that monetary policy can differently affect the different inflation rates specific for each of the income groups. By using a Factor-Augmented VAR (FAVAR) model, we show that a monetary policy shock affects high-income households less compared to middle and lower-income households, although the differences between the separate income groups are generally small. Then, by using a small scale gap model, we find that the prices of low-income households are the most sensitive to a monetary policy shock, while the prices of the top-income households are the least sensitive to the shock, which is in line with our empirical findings.

Keywords: Inflation; monetary policy; distributional effects (search for similar items in EconPapers)
JEL-codes: E31 E52 (search for similar items in EconPapers)
Pages: 29
Date: 2021
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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