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Micro level data for macro models: the distributional effects of monetary policy

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  • Luisa Corrado
  • Daniela Fantozzi

Abstract

In this paper we investigate the effect of standard and non-standard monetary policy implemented by the ECB on income inequality in Italy. We use a novel database based on the survey micro level data on Income and Living Conditions (EU-SILC, Istat) in a repeated cross-section experiment which enables us to compute measures of inequality and the distribution over time for different incomes and subgroups of individuals. The identification strategy is based on the monetary surprises estimated in the Euro area Monetary Policy Event-Study Database (EA-MPD) for the Euro area. Using a battery of Local Projections, we evaluate the impact of monetary policy by comparing the performance of the impulse response functions of our inequality measures in different policy scenarios: 1999-2012 (pre-QE) and 1999-2017 (including the QE period). The main findings show that an expansionary unconventional monetary policy shock compressed inequality of disposable, labor and financial income more persistently than a conventional monetary shock. These effects are heterogeneous and seem to benefit mostly the bottom of the distribution. The impact on financial wealth is ambiguous favoring the wealthy households mainly in the short-run. Our evidence suggests that QE is associated with a decrease in Italian households' inequality.

Suggested Citation

  • Luisa Corrado & Daniela Fantozzi, 2021. "Micro level data for macro models: the distributional effects of monetary policy," National Institute of Economic and Social Research (NIESR) Discussion Papers 529, National Institute of Economic and Social Research.
    • Handle: RePEc:nsr:niesrd:529
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    Cited by:

    1. Tsiaras, Stylianos, 2023. "Asset purchases, limited asset markets participation and inequality," Journal of Economic Dynamics and Control, Elsevier, vol. 154(C).

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    More about this item

    Keywords

    Income Inequality; monetary policy; Local Projections; Survey Data; High-Frequency Data;
    All these keywords.

    JEL classification:

    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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