Monetary Policy, Income Inequality, and Inflation — What’s the Link?

2020 ◽  
Author(s):  
Jeremy Kronick ◽  
Francisco G Villarreal
Keyword(s):  
Monetary Policy ◽  
Income Inequality

scholarly journals Monetary Policy and Inequality under Labor Market Frictions and Capital-Skill Complementarity

2021 ◽  
Vol 13 (2) ◽  
pp. 292-332
Author(s):  
Juan J. Dolado ◽  
Gergő Motyovszki ◽  
Evi Pappa
Keyword(s):  
Monetary Policy ◽  
Labor Market ◽  
Income Inequality ◽  
New Keynesian ◽  
Labor Income ◽  
Skilled Workers ◽  
Investment Demand ◽  
Multiplier Effect ◽  
Distributional Consequences ◽  
Amplification Mechanism

We provide a new channel through which monetary policy has distributional consequences at business cycle frequencies. We show that an unexpected monetary easing increases labor income inequality between high-skilled and less-skilled workers. To rationalize these findings, we build a New Keynesian DSGE model with asymmetric search-and-matching (SAM) frictions and capital-skill complementarity (CSC) in production. We show that CSC on its own introduces a dynamic demand amplification mechanism: the increase in high-skilled employment after a monetary expansion makes complementary capital more productive, encouraging a further rise in investment demand and creating a multiplier effect. SAM asymmetries magnify this channel. (JEL E32, E52, E24, E12, E25, J63)

The impacts of sector growth and monetary policy on income inequality in developing countries

2019 ◽  
Vol 46 (3) ◽  
pp. 591-610 ◽  
Author(s):  
Sima Siami-Namini ◽  
Darren Hudson
Keyword(s):  
Economic Growth ◽  
Developing Countries ◽  
Monetary Policy ◽  
Panel Data ◽  
Income Inequality ◽  
Nonlinear Effect ◽  
Service Sector ◽  
Functional Form ◽  
Content Type ◽  
The Relationship

PurposeThe purpose of this paper is to explore the effect of growth in different sectors of the economy of developing countries on income inequality and analyze how inflation, as a proxy for monetary policy, makes a proportionate contribution for setting a binding national target for reducing income inequality. The paper examines the existence of a linear or nonlinear effect of inflation and sectoral economic growth on income inequality using a balanced panel data of 92 developing countries for the period of 1990–2014.Design/methodology/approachMethods section includes several steps as below: first, the functional form of the model using panel data for investigating the contribution of economic sectors in income inequality; second, to estimate the relationship between income inequality and sector growth: testing the Kuznets hypothesis; third, to estimate the relationship between inflation and income inequality base on general functional form of the model proposed by Amornthum (2004); fourth, a panel Granger causality analysis based on a VECM approach.FindingsThe statistically significant finding shows that first agricultural growth and then industrial growth have a dominate impact in reducing income inequality in our sample. But, the service sector growth has positive effects. The results confirm the existence of Kuznets inverted “U” hypothesis for industry growth and Kuznets “U” hypothesis for service sector growth. The findings show that sector growth and inflation affect income inequality in the long-run.Originality/valueThis research is an original paper which analyzes the effect of growth in different sectors of the economy of developing countries (agriculture, manufacturing and services sectors) on income inequality and test the Kuznets hypothesis in terms of sector growth and at the same time, examine the existence of a linear/nonlinear effect of inflation and sectoral economic growth on income inequality and test Granger causality relationship between income inequality and sector growth and inflation.

MONETARY POLICY, FINANCIAL DEVELOPMENT AND INCOME INEQUALITY IN DEVELOPING COUNTRIES

2020 ◽  
pp. 1-31
Author(s):  
MANSOR H. IBRAHIM
Keyword(s):  
Developing Countries ◽  
Monetary Policy ◽  
Income Inequality ◽  
Income Distribution ◽  
Financial Development ◽  
Financial Stability ◽  
Developed Countries ◽  
Financial Indicators ◽  
Negative Impacts ◽  
Effect Of Monetary Policy

The paper empirically examines the redistributive effect of monetary policy and assesses whether financial development plays any role in shaping monetary policy — inequality relations in developing countries. We uncover evidence supporting the redistributive consequences of monetary policy especially in more financially developed countries. We further note that while financial development raises income inequality in countries with low financial development, it leads to a reduction in income inequality in high financial development countries. As a side result, economic growth contributes favorably to income equalization in these countries. Finally, such financial indicators as financial access, financial efficiency and financial stability also condition the impacts of monetary policy on income distribution, although they are independently insignificant. Our results hint that the improvements in information and in efficiency rather than depth and access that would attenuate the negative impacts of contractionary monetary policy on income distribution.

Monetary Policy and the Top 10%: A Time-Series Analysis Using ARDL and ECM

2021 ◽  
Vol 0 (0) ◽  
Author(s):  
Nadeen Omar ◽  
Christian Richter
Keyword(s):  
Time Series ◽  
Monetary Policy ◽  
Interest Rate ◽  
Income Inequality ◽  
Dynamic Models ◽  
Short Term ◽  
Main Hypothesis ◽  
Income Share ◽  
Distributed Lag ◽  
The Impact

Abstract For the past decades, income inequality has been on the rise, and so is the frequency of its mentions in recent speeches by central bankers. With the heightened importance of the topic, this research aims to study the impact of monetary policy on income inequality. The study used dynamic models for the analysis, namely; the Error-correction Model (ECM) and the Auto-regressive Distributed Lag (ARDL) model to determine the relationship in both the short- and long-run. The data used were the top 10% income share and the short-term interest rate. Our main hypothesis is that changes in the short-term interest rate have a significant impact on the top 10% income share. We draw time-series evidence from a sample of nine economies at different stages of development: United States, United Kingdom, Russia, Germany, France, Greece, China, South Africa and Chile. The findings support the hypothesis with interestingly varying effects across our sample. These results provide important implications that can contribute in bettering policy setting and add to the discussion of the role of central banks in reducing income inequality.

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