Does Monetary Policy Affect Income Inequality in the Euro Area?

Abstract

and participants of the 22nd ICMAIF Conference (Rethymnon), the 49th MMF Conference (London), and research seminars at the Bank of Lithuania and De Nederlandsche Bank for helpful comments and suggestions. The views expressed do not necessarily reflect the official views of De Nederlandsche Bank and the Bank of Lithuania.

Central Bank Policies and Income and Wealth Inequality: A Survey

“…Several papers find that contractionary monetary policy, by raising interest rates, increases income and earnings inequality in the USA (Coibion et al ., ; Aye et al ., ), the UK (Mumtaz and Theophilopoulou, , ), the euro area (Guerello, ; Samarina and Nguyen, ), and in a panel of advanced and emerging countries (Furceri et al ., ). Monetary contraction depresses economic activity, employment, and wages, notably hurting low‐income households for which labor earnings constitute the main income source.…”

“…The first channel refers to heterogeneity across households in primary income sources (relative share of labor, business, or financial income), while the second suggests different effects of interest rate shocks on labor earnings of low-and high-income households (Coibion et al, 2017). Several papers find that contractionary monetary policy, by raising interest rates, increases income and earnings inequality in the USA (Coibion et al, 2017;Aye et al, 2019), the UK Theophilopoulou, 2015, 2017), the euro area (Guerello, 2018;Samarina and Nguyen, 2018), and in a panel of advanced and emerging countries (Furceri et al, 2018). Monetary contraction depresses economic activity, employment, and wages, notably hurting low-income households for which labor earnings constitute the main income source.…”

“…To overcome the described data limitations, some studies use annual inequality measures from national or international sources, and apply mixed‐frequency techniques (Mumtaz and Theophilopoulou, ; Samarina and Nguyen, ) or consider a panel of countries over a long period (Furceri et al ., ). Some studies use microsimulations to replicate the wealth distribution from sporadic household surveys in the absence of long time‐series data on households’ portfolio composition (see below).…”

Central Bank Policies and Income and Wealth Inequality: A Survey

“…To overcome the described data limitations, some studies use annual inequality measures from national or international sources, and apply mixed-frequency techniques (Mumtaz and Theophilopoulou, 2015;Samarina and Nguyen, 2018) or consider a panel of countries over a long period (Furceri et al, 2018). Some studies use microsimulations to replicate the wealth distribution from sporadic household surveys in the absence of long time-series data on households' portfolio composition (see below).…”

“…The first channel refers to heterogeneity across households in primary income sources (relative share of labor, business, or financial income), while the second suggests different effects of interest rate shocks on labor earnings of low-and high-income households (Coibion et al, 2017). Several papers find that contractionary monetary policy, by raising interest rates, increases income and earnings inequality in the USA (Coibion et al, 2017;Aye et al, 2019), the UK Theophilopoulou, 2015, 2017), the euro area (Guerello, 2018;Samarina and Nguyen, 2018), and in a panel of advanced and emerging countries (Furceri et al, 2018). Monetary contraction depresses economic activity, employment, and wages, notably hurting low-income households for which labor earnings constitute the main income source.…”