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An Empirical Assessment of Monetary Policy Channels in Income and Wealth Disparities

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Abstract

Our paper aims at analysing the relation between monetary policy (MP) and its transmission channels in both income and wealth inequality for the Euro Area between 1999 and 2017. We analysed three main representative MP channels (income, portfolio and earnings heterogeneity) that might explain how MP decisions may affect wealth and income distribution and the aggregate effect thereof. Although we used different measures of income inequality, we do not have sufficient data on wealth inequality. In this case, we propose an alternative measure that can translate the unequal pace of capital accumulation among households. The results we reached indicate that the increase in asset prices, mainly equity, seems to be relevant to explain an increase in income inequality. On the other hand, it seems that the declining unemployment due to MP measures helped avoid a higher increase in income inequality in the Euro Area.

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Acknowledgements

The opinions expressed herein are those of the author and do not necessarily reflect those of his employers. Any remaining errors are the author's sole responsibility. The authors acknowledge financial support from FCT—Fundação para a Ciência e Tecnologia (Portugal), national funding through research Grant UIDB/05069/2020, REM—Research in Economics and Mathematics, and UECE—Research Unit on Complexity and Economics. UECE is supported by FCT (Fundação para a Ciência e a Tecnologia, Portugal).

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  1. Department of Economics, ISEG/UL - Universidade de Lisboa, Lisbon, Portugal

    José Alves

  2. ISEG/ULisbon, University of Lisbon, R. Miguel Lupi 20, 1249-078, Lisbon, Portugal

    Tomás Silva

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  1. José Alves
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  2. Tomás Silva
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Correspondence to José Alves.

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Alves, J., Silva, T. An Empirical Assessment of Monetary Policy Channels in Income and Wealth Disparities. Comp Econ Stud 63, 432–449 (2021). https://doi.org/10.1057/s41294-021-00149-0

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