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Moving Closer or Drifting Apart: Distributional Effects of Monetary Policy

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  • Lucas Hafemann
  • Paul Rudel
  • Jörg Schmidt

Abstract

The heating debate about increasing income inequality forces monetary policy makers and academia to (re‐)assess the nexus between (unconventional) monetary policy and inequality. We use a VAR framework to unveil the distributional effects of monetary policy and the role of redistribution in six advanced economies. While all of them experience an increase in Gini coefficients of gross income due to an expansionary monetary policy shock, only countries with relatively little redistribution display a significant response of net income inequality as well. To examine the underlying transmission channels we take a closer look at the sources of income, i.e. labor and capital income. Our findings suggest that the disproportional surge in capital income is the driving force behind the increase in net income inequality.

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  • Lucas Hafemann & Paul Rudel & Jörg Schmidt, 2018. "Moving Closer or Drifting Apart: Distributional Effects of Monetary Policy," Manchester School, University of Manchester, vol. 86(S1), pages 110-136, September.
    • Handle: RePEc:bla:manchs:v:86:y:2018:i:s1:p:110-136
    DOI: 10.1111/manc.12237
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    Cited by:

    1. Burkhard Heer & Alfred Maußner, 2024. "Dynamic General Equilibrium Modeling," Springer Texts in Business and Economics, Springer, edition 3, number 978-3-031-51681-8, August.

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