Monetary Policy and Income Inequality: An Empirical Analysis for the Euro Area

Details

Supervisors

Yuliya Rychalovska

Faculty

Faculté des sciences économiques, sociales, politiques et de communication

Degree label

Master [120] en sciences économiques, orientation générale, à finalité approfondie

Abstract

This study examines the impact of tightening conventional policy and expansionary unconventional monetary policy on income inequality within the Euro Area. Additionally, investigates the reaction of household's income at different points of the distribution, in three European countries: Belgium, France and Greece. By using a Structural Vector Auto-regressive (SVAR) model with quarterly data and 7 variables, we constructed two distinct models and we capture the income distribution channel. The first model, covering the period from 1999Q1 to 2008Q4 and reveals that income inequality increases, following contractionary conventional monetary policy shock, while the low and middle income households experiencing the greatest income loss. The second model, which incorporates the post crisis period, between 2009Q1 and 2019Q4 demonstrates that an expansion of ECB's balance sheet persistently declines the income inequality, with the low income households benefiting the most.