Income inequality and monetary policy in the Euro Area

Jérôme Creel (1) , Mehdi El Herradi (2)

1 OFCE - Observatoire français des conjonctures économiques (Sciences Po)
2 Université Bordeaux Montaigne

This paper examines the distributional implications of monetary policy, either standard, non-standard or both, on income inequality in 10 Euro Area countries over the period 2000-2015. We use three different indicators of income inequality in a Panel VAR setting in order to estimate IRFs of inequality to a monetary policy shock. The identification of monetary shocks follows a one-step procedure and relies only on country-specific determinants of income distribution. Results suggest that: (i) the distributional effects of ECB’s monetary policy have been modest and (ii) mainly driven in times of conventional monetary policy measures, especially in countries with a high level of market inequalities, while, overall, (iii) standard and non-standard monetary policies do not significantly differ in terms of impact on income inequality. Results are robust to alternative data sources either for income distribution or for non-standard monetary policies.

Keywords: Euro Area; Monetary policy; Income distribution; Panel VAR

Domains: Humanities and Social Sciences; Economics and Finance

Jérôme Creel, Mehdi El Herradi. Income inequality and monetary policy in the Euro Area. 2020. ⟨hal-03389183⟩