Beyond neutrality: Uncovering the sectoral and distributional consequences of monetary policy in the Nordic countries

Jawad Khawaja and Hamid Raza

No 127, ZÖSS-Discussion Papers from University of Hamburg, Centre for Economic and Sociological Studies (CESS/ZÖSS)

Abstract: While mainstream macroeconomics has long treated distributional issues as secondary, often dismissing them as outside the purview of monetary policy, the post-Keynesian tradition emphasizes that income distribution, financial positions, and class dynamics are central to understanding macroeconomic outcomes. Drawing on this rich theoretical framework, this paper empirically investigates the distributive and sectoral consequences of monetary policy, an important but often neglected area within post-Keynesian empirical research. Using data for three Nordic countries (Denmark, Sweden, and Finland), we provide empirical evidence on how contractionary monetary policy shocks propagate through functional income shares, compress private demand, and reconfigure financial balances of the institutional sectors. Our paper bridges the gap between post-Keynesian theoretical insights and the empirical rigour essential in policy development. The results show that interest rate changes are not only non-neutral but fundamentally distributive, systematically redistributing income and reshaping balance sheets.

Keywords: Monetary Policy; Income Distribution; Sectoral Balances; Financialization (search for similar items in EconPapers)
Date: 2026
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