Should the monetary authorities be sensitive to inequality concerns? Empirical evidence for a panel of 62 countries

Abstract

[Abstract]: This paper studies, by means of an empirical approach, how monetary policy might affect the distribution of individual income. After describing the channels through which monetary policy could impinge on income distribution, we carry out a panel analysis of 62 countries that control their monetary policy for the period 1996-2015. Using two possible proxy variables for monetary policy (the monetary aggregate M3 and the real interest rates), the results reveal a significant positive relationship between real interest rates and income inequality measured through the market Gini coefficient and polarization ratios. Our findings suggest that central bankers should be more aware of the redistributive effects of monetary policy.