Original scientific paper
https://doi.org/10.1080/1331677X.2022.2106269
The impact of monetary policy shocks on income inequality: a tale of two countries
Lijin Xiang
Wenhao Wang
Jiameng Ren
Yang Zhao
Abstract
The easing monetary policy after the global financial crisis triggered
wide concerns on the responses of income inequality. In this paper,
we investigate impact of monetary policy shocks on income inequality.
We propose a general equilibrium model and show that monetary
policies could affect income inequality by affecting the earnings
of high-income households in financial markets and business operations.
Using a TVP-FAVAR model, we find contradictory distributional
effects of monetary policy shocks in China and the US. Specifically,
expansionary monetary policy shocks persistently increase income
inequality in China but decrease income inequality in the US.
Moreover, the impacts are volatile in the short-term, but stabilise
after 10 periods. The investigation on the responses of top 1% and
bottom 50% income share confirms the finding of contradictory distributional
effects of monetary policy shocks.
Keywords
Monetary policy shocks; income inequality; TVP-FAVAR; two country comparison
Hrčak ID:
306617
URI
Publication date:
30.4.2023.
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