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Income Inequality and the Distributional Effects of Monetary Policy: The Role of Financial Heterogeneity

Author

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  • Boris Fišera

    (University of Economics in Bratislava, Slovak Academy of Sciences
    Charles University)

Abstract

We study the effects of both standard and unconventional monetary policies (UMPs) of the European Central Bank (ECB) on income inequality in 19 Euro Area (EA) member states over the years 2008-2018. We distinguish two main groups of UMPs: quantitative easing (QE) and credit easing (CE) policies. We further investigate the role of financial heterogeneity among EA member states in affecting the distributional effects of these monetary policies. Using the pooled mean group (PMG) estimator we find that restrictive standard monetary policy and expansionary UMPs lead to higher income inequality. Furthermore, our results suggest that a higher level of financial development augments the distributional effects of monetary policies. We also find that the financial integration and the stage of the credit cycle affect the distributional effects of monetary policy, while the stage of real estate prices and stock prices cycles do not.

Suggested Citation

  • Boris Fišera, 2020. "Income Inequality and the Distributional Effects of Monetary Policy: The Role of Financial Heterogeneity," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 70(6), pages 488-520, December.
  • Handle: RePEc:fau:fauart:v:70:y:2020:i:6:p:488-520
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    File URL: https://journal.fsv.cuni.cz/mag/article/show/id/1474
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    More about this item

    Keywords

    income inequality; standard monetary policy; unconventional monetary policy (UMP); distributional effects; financial heterogeneity;
    All these keywords.

    JEL classification:

    • 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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