Effect of Monetary Policy Shocks on Inequalities

Details

Supervisors

RYCHALOVSKA, Yuliya ; Houssa, Romain

Faculty

Faculté des sciences économiques, sociales, politiques et de communication

Degree label

Master [120] en sciences économiques, orientation générale

Abstract

This study focuses on estimating the effect of monetary policy shocks on income and consumption inequality for the case of five emerging economies- Brazil, Russia, India, China and South Africa, using quarterly data from 1991-2015 and understand the most significant channel of transmission of monetary policy shocks on inequality. The study follows the SVAR methodology for estimation. The results show that the monetary policy shocks have minor effect on both inequalities. Although the effect is minor, income inequality’s response to a contractionary monetary policy shock is seen to be positive for atleast four quarters among all the countries. The positive effect of contractionary monetary policy on income inequality for a significant period of time indicates that the channel of transmission is through earnings heterogeneity channel and savings-redistribution channel among all the five countries.The effect of monetary policy on income inequality is seen to be most long lasting in the case of Russia. Consumption inequality is seen to respond negatively to contractionary monetary policy shock for India and China but has positive response for Brazil and South Africa. In South Africa, the effect is seen to be marginal and positive. For the case of Russia, the effect is seen to be almost nil for the consumption inequality model.