The impact of monetary policy on income inequality: evidence from Eurozone markets

Abstract

PurposeThis study examines the impact of monetary policy on income inequality in Eurozone countries for the period between 2005 and 2017.Design/methodology/approachThe authors use regression analysis, panel vector autoregression (PVAR) analysis and impulse response functions, in order to examine the impact of monetary policy on income inequality in Eurozone countries.FindingsThis study examines the impact of monetary policy on income inequality in Eurozone countries for the period between 2005 and 2017. The results indicate that, on average, monetary policy tends to increase income inequality. A closer examination indicates that for Ireland, Germany and the Netherlands monetary policy has no impact on income inequality or a weak impact (France), while for Spain, Portugal, Greece and Italy the impact is more pronounced. PVAR analysis and impulse response functions further indicate that female income inequality responds more significantly to monetary policy.Originality/valueIn contrast to previous studies the authors estimate separate models for males, females and the total population to evaluate whether gender is an important factor. Furthermore, the authors use two proxies for monetary policy: the shadow rate (SR) and the total assets (TAs) of the central bank.