IDEAS home Printed from https://ideas.repec.org/p/imk/fmmpap/124-2026.html

Income Distribution and the Cost Channel of Monetary Policy: Evidence from Japan, the UK, and the US

Author

Listed:
  • Matteo Deleidi

  • Enrico Sergio Levrero

  • Antonino Lofaro

Abstract

This paper assesses the impact of a monetary policy tightening on prices and income distribution. We estimate Structural Vector Autoregressive models for Japan, the UK, and the US over the period 1960Q1-2019Q4. Our findings reveal a cost channel of monetary policy since an increase in interest rates exerts a positive and long-lasting impact on the price level. Furthermore, we highlight the negative effects of restrictive monetary policies on real wages, as price increases are not compensated by an equivalent increase in nominal wages. These findings remain robust across different subperiods and when alternative measures of expectations are incorporated. Finally, by estimating pure shocks from a counterfactual VAR, we decompose the transmission of monetary policy into the demand, distributional, and exchange-rate channels. While the demand channel only partially mitigates the cost channel, the distributional channel amplifies it. By contrast, the exchange-rate channel exerts a disinflationary effect mainly since the 1980s

Suggested Citation

  • Matteo Deleidi & Enrico Sergio Levrero & Antonino Lofaro, 2026. "Income Distribution and the Cost Channel of Monetary Policy: Evidence from Japan, the UK, and the US," FMM Working Paper 124-2026, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    • Handle: RePEc:imk:fmmpap:124-2026
    as

    Download full text from publisher

    File URL: http://www.boeckler.de/pdf/p_fmm_imk_wp_124_2026.pdf
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:imk:fmmpap:124-2026. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sabine Nemitz (email available below). General contact details of provider: https://edirc.repec.org/data/fmbocde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.