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An Empirical Assessment of Monetary Policy Channels in Income and Wealth Disparities

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  • José Alves

    (ISEG/UL - Universidade de Lisboa)

  • Tomás Silva

    (University of Lisbon)

Abstract

Our paper aims at analysing the relation between monetary policy (MP) and its transmission channels in both income and wealth inequality for the Euro Area between 1999 and 2017. We analysed three main representative MP channels (income, portfolio and earnings heterogeneity) that might explain how MP decisions may affect wealth and income distribution and the aggregate effect thereof. Although we used different measures of income inequality, we do not have sufficient data on wealth inequality. In this case, we propose an alternative measure that can translate the unequal pace of capital accumulation among households. The results we reached indicate that the increase in asset prices, mainly equity, seems to be relevant to explain an increase in income inequality. On the other hand, it seems that the declining unemployment due to MP measures helped avoid a higher increase in income inequality in the Euro Area.

Suggested Citation

  • José Alves & Tomás Silva, 2021. "An Empirical Assessment of Monetary Policy Channels in Income and Wealth Disparities," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 63(3), pages 432-449, September.
    • Handle: RePEc:pal:compes:v:63:y:2021:i:3:d:10.1057_s41294-021-00149-0
    DOI: 10.1057/s41294-021-00149-0
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    More about this item

    Keywords

    Income inequalities; Wealth inequalities; Monetary policy; Transmission channels;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income 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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