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Income Inequality as Long-term Conditioning Factor of Monetary Transmission to Bank Interest Rates in EA Countries

Author

Listed:
  • Tomas Domonkos

    (Slovak Academy of Sciences & Comenius University in Bratislava, Slovakia)

  • Boris Fisera

    (Slovak Academy of Sciences
    Charles University, Prague)

  • Maria Siranova

    (Slovak Academy of Sciences)

Abstract

In this paper we investigate the effect of income inequality on the transmission of standard and unconventional monetary policy shocks to bank loan rates. We hypothesize that income inequality might encapsulate important characteristics of credit market demand. We use an interacted panel error correction model to examine a set of EA countries over the years 2008-2016. Our findings suggest that higher income inequality hinders the transmission of standard monetary policy to consumer loans and limits the use of unconventional monetary policy in the housing loans segment. Conversely, more unequal societies are characterized by stronger monetary transmission in the small firm loans segment.

Suggested Citation

  • Tomas Domonkos & Boris Fisera & Maria Siranova, 2021. "Income Inequality as Long-term Conditioning Factor of Monetary Transmission to Bank Interest Rates in EA Countries," Working Papers IES 2021/15, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised May 2021.
  • Handle: RePEc:fau:wpaper:wp2021_15
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    More about this item

    Keywords

    interest-rate pass-through; interacted PMG; income inequality; standard monetary policy; unconventional monetary policy;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • 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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