Does Monetary Policy Affect Income Distribution? Local Projection Evidence from Turkey

Ayşegül Şahin and Ilyas Siklar

Politická ekonomie, 2025, vol. 2025, issue 1, 125-151

Abstract: The relationship between monetary policy and inequality has received limited attention in the economics literature. This study aims to contribute to the literature by examining the relationship between monetary policy and income inequality in developing countries, specifically by analysing the results of the Turkish experiment. The local projection method was used to determine the relationship between monetary policy shocks, obtained through the VAR model, and the calculated inequality measures. The main findings of the study suggest that monetary policy can potentially influence the distribution of total income, particularly when the monetary policy shock is significant. The results indicate that monetary policy has a significant impact on income distribution, favouring property income. Moreover, this effect is most pronounced among the highest-income group, highlighting the heterogeneous nature of the impact across different income groups. However, the middle 20% group experiences the sharpest deterioration in income distribution following monetary policy shocks.

Keywords: Income distribution; monetary policy shocks; local projection; Turkey (search for similar items in EconPapers)
JEL-codes: D33 E52 E58 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.18267/j.polek.1453

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