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Moving Closer or Drifting Apart: Distributional Effects of Monetary Policy
Author(s) -
Hafemann Lucas,
Rudel Paul,
Schmidt Jörg
Publication year - 2018
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/manc.12237
Subject(s) - economics , redistribution of income and wealth , economic inequality , monetary policy , income distribution , nexus (standard) , inequality , shock (circulatory) , redistribution (election) , macroeconomics , monetary economics , labour economics , unemployment , medicine , mathematical analysis , mathematics , politics , computer science , political science , law , embedded system
The heating debate about increasing income inequality forces monetary policy makers and academia to (re‐)assess the nexus between (unconventional) monetary policy and inequality. We use a VAR framework to unveil the distributional effects of monetary policy and the role of redistribution in six advanced economies. While all of them experience an increase in Gini coefficients of gross income due to an expansionary monetary policy shock, only countries with relatively little redistribution display a significant response of net income inequality as well. To examine the underlying transmission channels we take a closer look at the sources of income, i.e. labor and capital income. Our findings suggest that the disproportional surge in capital income is the driving force behind the increase in net income inequality.