The Effects of Monetary Policy Shocks on Inequality

By Davide Furceri, Prakash Loungani, Aleksandra Zdzienicka

December 22, 2016

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Davide Furceri, Prakash Loungani, and Aleksandra Zdzienicka. The Effects of Monetary Policy Shocks on Inequality, (USA: International Monetary Fund, 2016) accessed December 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper provides new evidence of the effect of monetary policy shocks on income inequality. Using a measure of unanticipated changes in policy rates for a panel of 32 advanced and emerging market countries over the period 1990-2013, the paper finds that contractionary (expansionary) monetary actions increase (reduce) income inequality. The effect, however, varies over time, depending on the type of the shocks (tightening versus expansionary monetary policy) and the state of the business cycle, and across countries depending on the share of labor income and redistribution policies. In particular, we find that the effect is larger for positive monetary policy shocks, especially during expansions. Looking across countries, we find that the effect is larger in countries with higher labor share of income and smaller redistribution policies. Finally, while an unexpected increase in policy rates increases inequality, changes in policy rates driven by an increase in growth are associated with lower inequality.

Subject: Central bank policy rate, Financial services, Income distribution, Income inequality, Monetary expansion, Monetary policy, National accounts, Personal income

Keywords: Accommodative monetary policy stance, Central bank policy rate, Global, Income distribution, Income inequality, Monetary expansion, Monetary policy, Monetary policy easing, Monetary policy foresight, Monetary policy rate, Monetary policy shock, Monetary policy shocks, Panel E, Personal income, WP

Publication Details

Pages:

43
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2016/245
Stock No:

WPIEA2016245
ISBN:

9781475563092
ISSN:

1018-5941

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