Winners and Losers: The Effects of Monetary Policy on Income and Consumption Inequality

Aariya Sen and Rudra Sensarma

Emerging Markets Review, 2025, vol. 68, issue C

Abstract: Recent studies have examined the impact of monetary policy on economic inequality, but have focused on advanced economies and wealth inequality. We analyse the impact of monetary policy on income and consumption inequality estimated from a household level dataset in India. We apply Sign-Restricted VAR and Local Projection models to monthly data for 2014–2023. We show that contractionary monetary policy worsens consumption inequality while reducing income inequality. We also find that while restrictive monetary policy reduces capital income inequality and wage income inequality it widens the gap between capital and wage income earners. Moreover, monetary policy exhibits asymmetric effects, suggesting trade-offs for the central bank.

Keywords: Monetary policy; Inequality; Developing country; Central Bank; Sign-restricted VAR; Local projection (search for similar items in EconPapers)
JEL-codes: D31 D33 E52 E58 E61 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:68:y:2025:i:c:s1566014125000676

DOI: 10.1016/j.ememar.2025.101318

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