The Distributive Impact of Monetary Policy: Evidence from the UK

33 Pages Posted: 13 Jul 2017

Date Written: June 23, 2017

Abstract

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

Suggested Citation

Ballabriga, Fernando and Davtyan, Karen, The Distributive Impact of Monetary Policy: Evidence from the UK (June 23, 2017). ESADE Business School Research Paper No. 269. Available at SSRN: https://ssrn.com/abstract=3001828 or http://dx.doi.org/10.2139/ssrn.3001828

Fernando Ballabriga (Contact Author)

ESADE Business School ( email )

Av. de Pedralbes, 60-62
Barcelona, 08034
Spain

Karen Davtyan

University of Barcelona ( email )

c/ Adolf Florensa, 8
Barcelona, 08028
Spain

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