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Income Inequality and Monetary Policy: An analysis on the Long Run Relation

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The distributional effect of monetary policy is estimated in the case of the USA. In order to identify a monetary policy shock, the paper employs contemporaneous restrictions with ex-ante identified monetary policy shocks as well as log run identification. In particular, a cointegration relation has been determined among the considered variables and the vector error correction methodology has been applied for the identification of the monetary policy shock. The obtained results indicate that contractionary monetary policy decreases income inequality in the country. These results could have important implications for the design of policies to reduce income inequality  by giving more weight to monetary policy.

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Universitat de Barcelona. Institut de Recerca en Economia Aplicada Regional i Pública

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Documents de treball (Institut de Recerca en Economia Aplicada Regional i Pública (IREA))

# metadata.dc.title[].value
Income Inequality and Monetary Policy: An analysis on the Long Run Relation