Macroprudential Policy and Income Inequality: The Trade-off Between Crisis Prevention and Credit Redistribution

Simona Malovana, Jan Janku and Martin Hodula

Working Papers from Czech National Bank, Research and Statistics Department

Abstract: We estimate the impact of macroprudential policy on income inequality for a panel of 105 countries over the 1990-2019 period. We document that macroprudential tightening can have both upward and downward effects on income distribution, with the direction of the effect depending on the type of instrument used and a broader set of macro-financial conditions. We identify and empirically verify two channels - the crisis mitigation and prevention channel and the credit redistribution channel. Through the first one, tighter regulation ahead of the crisis reduces income inequality and mitigates the redistributive effects of financial crises, reflecting the increased resilience of the financial sector. Through the second one, it contributes to greater inequality due to its negative effect on credit and house price growth. This has an important policy implication: the timely implementation of macroprudential regulation has preventive effects and can contribute to a more equal distribution of society's income.

Keywords: Credit redistribution; crisis prevention; income inequality; local projections; macroprudential policy (search for similar items in EconPapers)
JEL-codes: G01 G28 O15 (search for similar items in EconPapers)
Date: 2023-03
New Economics Papers: this item is included in nep-ban, nep-cba and nep-fdg
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Citations: View citations in EconPapers (1)

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