Moving Closer or Drifting Apart: Distributional Effects of Monetary Policy

Lucas Hafemann (), Paul Rudel () and Jorg Schmidt ()
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Lucas Hafemann: Justus-Liebig-University Giessen
Paul Rudel: Justus-Liebig-University Giessen
Jorg Schmidt: Justus-Liebig-University Giessen

MAGKS Papers on Economics from Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung)

Abstract: Our paper picks up the current controversial debate about increasing (income) inequality due to recent monetary policy measures in major advanced economies. We use a VAR framework identified with sign restrictions to figure out how income inequality related measures react to monetary policy in six different advanced economies. These countries differ by their absolute income inequality as well as their redistribution. We choose the U.S., Canada and South Korea as countries with very little redistribution and Sweden, the Czech Republic and Hungary as countries with relatively high redistribution. While all economies experience an increase in Gini coefficients of gross income in the presence of an expansionary monetary policy shock, only the U.S., Canada and South Korea also show a significant response in Gini coefficient of net income. To figure out how the transmission of monetary policy to income inequality works we pick up the two major channels dominant in the literature: The employment channel and the income composition channel. The latter is analyzed by data from national accounts concerning two different kinds of income households receive: Labor related income and capital payments, both net. While we find that capital owners profit disproportionately in the less redistributing countries, we observe a more even reaction in both income types. This indicates that the harmful effects of expansionary monetary policy on the market income distribution are mitigated if the degree of redistribution is high.

Keywords: Income Inequality; Factor Income Distribution; Monetary Policy; VAR; Sign-Restrictions (search for similar items in EconPapers)
JEL-codes: D31 D33 E24 E25 E52 E64 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2017
New Economics Papers: this item is included in nep-lma, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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