Monetary policy, financialization and functional income distribution in G7 countries

Giovanna Ciaffi, Stefano Di Bucchianico and Antonino Lofaro

Chapter 13 in Central Banking, Monetary Policy and Financial In/Stability, 2025, pp 253-271 from Edward Elgar Publishing

Abstract: The present chapter analyses the impact of monetary policy and financialization on functional income distribution in terms of the level of real wages and the size of the labor share of income by means of a panel SVAR model applied to a dataset of G7 countries (1970–2019). First, as a result of restrictive monetary policy, we observe a negative effect on economic activity levels, a positive impact on prices, and a decline in real wages. The labor share shows a double pattern: in the initial phase it rises, and then it steadily reverses its trend. Second, an increase in the phenomenon of financialization leads to a contraction in both real wages and the labor share. Our results support the heterodox idea of a non-transitory impact of monetary policy and financialization on functional income distribution.

Keywords: Monetary policy; Financialization; Functional income distribution; Panel SVAR; Labor share (search for similar items in EconPapers)
Date: 2025
ISBN: 9781035302147
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