Impact of Intraregional Income Inequality on the Operation of the Bank of Russia’s Monetary Policy Transmission Mechanism

This paper considers the impact of inequality on the operation of the three channels of the monetary policy transmission mechanism (the interest rate, credit, and exchange rate channels) and, accordingly, on the Bank of Russia’s ability to manage aggregate demand. It uses a sample of quarterly panel data for the period from 2012 to 2019 for 80 regions of Russia. With the help of dynamic panel data models with fixed effects, the marginal effects of monetary policy are calculated for each region, taking into account the inequality level. In addition, the Russian regions are clustered using the k-median method to identify groups with greater and lesser sensitivity to monetary policy depending on the level of inequality. The results of the study indicate a stronger decline in the growth rate of the real incomes of the population under contractionary monetary policy in the regions with consistently high inequality. The main factor is the heterogeneity of households, which manifests itself in different marginal propensities to consume or to save depending on the level of disposable income.