Income inequality and monetary policy in the euro area

Abstract

This paper examines the distributional implications of monetary policy, either standard, non-standard or both, on income inequality in 10 Euro Area countries over the period 2000-2015. We use three different indicators of income inequality in a Panel VAR setting in order to estimate IRFs of inequality to a monetar y policy shock. The identification of monetary shocks follows a one-step procedure and relies only on country-specific determinants of income distribution. Results suggest that: (i) the distributional effects of ECB's monetary policy have been modest and (ii) mainly driven in times of conventional monetary policy measures, especially in countries with a high level of market inequalities, while, overall, (iii) standard and non-standard monetary policies do not significantly differ in terms of impact on income inequality. Results are robust to alternative data sources either for income distri bution or for non-standard monetary policies.

The Heterogeneous Effects of Monetary Policy on Labor Income: Disentangling the Extensive and Intensive Margins

“…Another strand of the literature uses summary measures of income inequality like the Gini coefficient to document the distributional effects of monetary policy (see Coibion et al (2017), Mumtaz and Theophilopoulou (2017), Furceri et al (2018), Pereira da Silva et al (2022, Creel and El Herradi (2022) and Samarina and Nguyen (2023)). Chang and Schorfheide (2022) estimate, using a functional VAR, the effect of monetary policy on the cross-sectional distribution of earnings and also highlight the role of employment dynamics for the bottom of the distribution.…”