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

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  • José Alves
  • Tomás Silva

Abstract

Our paper aims at analysing the relation between monetary policy andits transmission channels on both income and wealthinequality for the Euro Area.We analysed three different channels identified by the literature (Income, Portfolio and Earnings Heterogeneity) that might explainhow monetary policy decisions may affect wealth and income distribution.In this empirical researchwe also set up a fourth regression combining all our selected explanatory variableswith the goal of studyingthe impact of the aforementionedchannels combined. For income inequality we analysed four different measures, namely Gini of disposable income(GDI), Gini of market income(GMI), share of income held by the top 1% and theshare of income of thetop 10%of society. In what regards to wealth inequality due to lack of data we had to createan alternative measure that can both translate the unequal savings rate of the Euro Area countries and evaluate the pace of capital accumulation in order to shed a lighton the gap between high-income and low-income household’sannual savings.So that our study could be conducted we developedan unbalancedpanel data analysis for the Eurozonecountriesbetween 1999 and 2017.The results we reached led us to conclude that the increase in asset prices, mainly equity, seems to be relevant to explain an increase in income inequality. However, it seems that the positive impact that MP had on unemployment by reducing it, contributed to avoid a higher increase on income inequality in the Euro Area.

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  • José Alves & Tomás Silva, 2020. "An Empirical Assessment of Monetary Policy Channels on Income and Wealth Disparities," Working Papers REM 2020/0144, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
  • Handle: RePEc:ise:remwps:wp01442020
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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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