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The impact of inequality on the transmission of monetary policy

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  • Voinea, L.
  • Lovin, H.
  • Cojocaru, A.

Abstract

We consider a model to detect the relation between household debt and the transmission of monetary policy in an EU Member State with independent monetary policy and high income inequality (Romania). We find that households response to changes in monetary conditions depends on their income and indebtedness profile. The transmission of monetary policy is more effective for middle income households, which are more indebted and have adjustable rates, as lower policy rates ease the consumption constraints on these households. Low income households respond mainly to budgetary policies, as the increase in disposable income matters most for the bottom quintile. Top income quintile reacts more to monetary policy than bottom quintile, but less than middle income quintiles. Lower inequality is associated with stronger effectiveness and higher homogeneity of monetary policy transmission; in turn, higher inequality is associated with less effectiveness and higher heterogeneity of the impact of the monetary policy.

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  • Voinea, L. & Lovin, H. & Cojocaru, A., 2018. "The impact of inequality on the transmission of monetary policy," Journal of International Money and Finance, Elsevier, vol. 85(C), pages 236-250.
    • Handle: RePEc:eee:jimfin:v:85:y:2018:i:c:p:236-250
    DOI: 10.1016/j.jimonfin.2017.11.007
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    Cited by:

    1. Eunseong Ma, 2023. "Monetary Policy And Inequality: How Does One Affect The Other?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(2), pages 691-725, May.
    2. José Alves & Tomás Silva, 2021. "An Empirical Assessment of Monetary Policy Channels in Income and Wealth Disparities," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 63(3), pages 432-449, September.
    3. Domonkos, Tomas & Fisera, Boris & Siranova, Maria, 2023. "Income inequality as long-term conditioning factor of monetary transmission to bank rates," Economic Modelling, Elsevier, vol. 128(C).
    4. Serena Merrino, 2021. "Wage inequality under inflationtargeting in South Africa," Working Papers 11018, South African Reserve Bank.
    5. Nalban, Valeriu, 2018. "Sectoral intermediate goods and redistributive effects of economic policies," Journal of Macroeconomics, Elsevier, vol. 58(C), pages 292-307.
    6. Merrino, Serena, 2022. "Monetary policy and wage inequality in South Africa," Emerging Markets Review, Elsevier, vol. 53(C).
    7. Davtyan, Karen, 2023. "Unconventional monetary policy and economic inequality," Economic Modelling, Elsevier, vol. 126(C).
    8. Serena Merrino, 2020. "Wage inequality under inflation-targeting in South Africa," WIDER Working Paper Series wp-2020-86, World Institute for Development Economic Research (UNU-WIDER).
    9. Erlend Nier & Radu Popa & Maral Shamloo & Liviu Voinea, 2019. "Debt Service and Default: Calibrating Macroprudential Policy Using Micro Data," IMF Working Papers 2019/182, International Monetary Fund.
    10. Andrea Colciago & Anna Samarina & Jakob de Haan, 2019. "Central Bank Policies And Income And Wealth Inequality: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 33(4), pages 1199-1231, September.
    11. Veronika Kajurová & Dagmar Vágnerová Linnertová, 2022. "The Nexus between Monetary Policy and Commercial Lending Rates: Comprehensive Evidence from Czechia during Different Policy Stances," Eastern European Economics, Taylor & Francis Journals, vol. 60(4), pages 330-351, July.

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    More about this item

    Keywords

    Inequality; Monetary policy; Consumption; Household debt; Disposable income; Romania;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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