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Income inequality and monetary policy in the Euro Area

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  • Jérôme Creel

    (Observatoire français des conjonctures économiques)

  • Mehdi El Herradi

    (Université Bordeaux Montaigne)

Abstract

This paper examines the distributional implications of monetary policy, either standard, non-standard or both, on income inequality in 10 Euro Area countries over the period 2000-2015. We use three different indicators of income inequality in a Panel VAR setting in order to estimate IRFs of inequality to a monetary policy shock. The identification of monetary shocks follows a one-step procedure and relies only on country-specific determinants of income distribution. Results suggest that: (i) the distributional effects of ECB’s monetary policy have been modest and (ii) mainly driven in times of conventional monetary policy measures, especially in countries with a high level of market inequalities, while, overall, (iii) standard and non-standard monetary policies do not significantly differ in terms of impact on income inequality. Results are robust to alternative data sources either for income distribution or for non-standard monetary policies.

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  • Jérôme Creel & Mehdi El Herradi, 2020. "Income inequality and monetary policy in the Euro Area," Sciences Po publications 20/2020, Sciences Po.
    • Handle: RePEc:spo:wpmain:info:hdl:2441/5srl83htc08lnqmtptsrb72rt9
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    More about this item

    Keywords

    Euro Area; Monetary policy; Income distribution; Panel VAR;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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