The UK has experienced a dramatic increase in earnings and income inequality over the past four decades. We use detailed micro level information to construct quarterly historical measures of inequality from 1969 to 2012. We investigate whether monetary policy shocks played a role in explaining this increase in inequality. We …nd that contractionary monetary policy shocks lead to an increase in earnings, income and consumption inequality and contribute to their ‡uctuation. The response of income and consumption at di¤erent quantiles suggests that contractionary policy has a larger negative e¤ect on low income households and those that consume the least when compared to those at the top of the distribution. Our evidence also suggests that the policy of quantitative easing may have contributed to the increase in inequality over the Great Recession.

A growing literature considers the impact of uncertainty using SVAR models that include proxies for uncertainty shocks as endogenous variables. In this paper, we consider the impact of measurement error in these proxies on the estimated impulse responses. We show via a Monte Carlo experiment that measurement error can result in attenuation bias in impulse responses. In contrast, the proxy SVAR that uses the uncertainty shock proxy as an instrument does not suffer from this bias. Applying this latter method to the Bloom (2009) data set results in impulse responses to uncertainty shocks that are larger in magnitude and more persistent than those obtained from a recursive SVAR.

This paper uses a FAVAR model with stochastic volatility to estimate the impact of uncertainty shocks on real income growth in US states. The results suggest that there is a large degree of heterogeneity in the magnitude and the persistence of the response to uncertainty shocks across states. The response is largest in Michigan, Indiana and Arkansas while the real income in New York, Alaska and New Mexico seems least sensitive to uncertainty. We relate the cross section of responses to state-level characteristics and find that the magnitude of the decline in income is largest in states with a large share of manufacturing, agriculture and construction industries, a high fiscal deficit and a more volatile housing market. In contrast, a higher share of mining industries and larger inter-governmental fiscal transfers ameliorate the impact of uncertainty.JEL Codes: C15,C32, E32

A growing literature has documented changes to the dynamics of key macroeconomic variables in industrialized countries and highlighted the possibility that these variables may react differently to structural shocks over time. However, existing empirical work on the international transmission of shocks largely abstracts from the possibility of changes to the international transmission mechanism across time. In addition, the existing empirical literature has largely employed small scale models with limited number of variables. This paper introduces an empirical model which allows the estimation of time-varying response of a large set of domestic variables to foreign money supply, demand and supply shocks. The key results show that a foreign monetary policy tightening resembles the classic beggar-thy-neighbor scenario for the UK in the period [1975][1976][1977][1978][1979][1980][1981][1982][1983][1984][1985][1986][1987][1988][1989][1990]. In more recent periods, the response is negative but largely insignificant.JEL classification: F41, E52.

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