The Distributive Impact of Monetary Policy: Evidence from the UK
33 Pages Posted: 13 Jul 2017
Date Written: June 23, 2017
This paper evaluates the distributive effect of monetary policy in the case of the UK. The income inequality measure represents the whole income distribution. Different income inequality data sources and sample periods are considered. The monetary policy shock is identified by using recursive, sign restrictions, and high frequency methods. The results indicate that contractionary monetary policy decreases income inequality. This effect is also explored through the different distribution channels of monetary policy. In this respect, our results suggest that the stronger negative effect of contractionary monetary policy on business and financial income than on labor earnings leads to the overall reduction of income inequality. This evaluation of the distributive impact of monetary policy can be useful for the development of macroeconomic policies designed to reduce income inequality.
Keywords: monetary policy, identification, distribution channels, income inequality
JEL Classification: C32, D31, E52
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