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Winners and Losers: The Effects of Monetary Policy on Income and Consumption Inequality

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  • Sen, Aariya
  • Sensarma, Rudra

Abstract

Recent studies have examined the impact of monetary policy on economic inequality, but have focused on advanced economies and wealth inequality. We analyse the impact of monetary policy on income and consumption inequality estimated from a household level dataset in India. We apply Sign-Restricted VAR and Local Projection models to monthly data for 2014–2023. We show that contractionary monetary policy worsens consumption inequality while reducing income inequality. We also find that while restrictive monetary policy reduces capital income inequality and wage income inequality it widens the gap between capital and wage income earners. Moreover, monetary policy exhibits asymmetric effects, suggesting trade-offs for the central bank.

Suggested Citation

  • Sen, Aariya & Sensarma, Rudra, 2025. "Winners and Losers: The Effects of Monetary Policy on Income and Consumption Inequality," Emerging Markets Review, Elsevier, vol. 68(C).
    • Handle: RePEc:eee:ememar:v:68:y:2025:i:c:s1566014125000676
    DOI: 10.1016/j.ememar.2025.101318
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    Keywords

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    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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