An Empirical Assessment of Monetary Policy Channels on Income and Wealth Disparities

REM Working Paper 0144-2020

36 Pages Posted: 17 Nov 2020

See all articles by José Alves

José Alves

UECE - Research Unit on Complexity in Economics; ISEG - ULisboa; REM - Resarch in Economics and Mathematics

Tomás Silva

Technical University of Lisbon (UTL) - Department of Economics

Date Written: September 30, 2020

Abstract

Our paper aims at analysing the relation between monetary policy and its transmission channels on both income and wealth inequality for the Euro Area. We analysed three different channels identified by the literature (Income, Portfolio and Earnings Heterogeneity) that might explain how monetary policy decisions may affect wealth and income distribution. In this empirical research we also set up a fourth regression combining all our selected explanatory variables with the goal of studying the impact of the aforementioned channels combined. For income inequality we analysed four different measures, namely Gini of disposable income (GDI), Gini of market income (GMI), share of income held by the top 1% and the share of income of the top 10% of society. In what regards to wealth inequality due to lack of data we had to create an alternative measure that can both translate the unequal savings rate of the Euro Area countries and evaluate the pace of capital accumulation in order to shed a light on the gap between high-income and low-income household’s annual savings. So that our study could be conducted we developed an unbalanced panel data analysis for the Eurozone countries between 1999 and 2017. The results we reached led us to conclude that the increase in asset prices, mainly equity, seems to be relevant to explain an increase in income inequality. However, it seems that the positive impact that MP had on unemployment by reducing it, contributed to avoid a higher increase on income inequality in the Euro Area.

Keywords: Income inequalities; Wealth inequalities; Monetary Policy; Transmission Channels

JEL Classification: C23; D31; E25; E52; E58;

Suggested Citation

Alves, José and Silva, Tomás, An Empirical Assessment of Monetary Policy Channels on Income and Wealth Disparities (September 30, 2020). REM Working Paper 0144-2020, Available at SSRN: https://ssrn.com/abstract=3702287 or http://dx.doi.org/10.2139/ssrn.3702287

José Alves (Contact Author)

UECE - Research Unit on Complexity in Economics ( email )

ISEG/UTL, Rua Miguel Lupi 20
Lisboa, 1249-078
Portugal

ISEG - ULisboa ( email )

Rua do Quelhas 6
LISBOA, 1200-781
Portugal

REM - Resarch in Economics and Mathematics ( email )

ISEG, Universidade de Lisboa
Rua Miguel Lupi, 20
Lisboa, 1249-078
Portugal

Tomás Silva

Technical University of Lisbon (UTL) - Department of Economics ( email )

R. Miguel Lupi, 20
Lisbon, 1248-078
Portugal

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