Income inequality and monetary policy in the euro area

This paper examines the distributional implications of ECB monetary policy on income inequality on a panel of 10 Euro area countries between 2000 and 2015. In contrast with the literature, we investigate different transmission channels and introduce several specifications (different monetary policy instruments, different indicators of income inequality, different data sources, parsimonious and larger models, shocks on monetary policy per se, on long-term rates and on inflation rates) in a panel VAR setting to highlight the robustness of results. 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 income inequality, while, overall, (iii) standard and non-standard monetary policies do not significantly differ in terms of impact and (iv) baseline results persist when redistributive public policies are introduced. We further document that our results are more likely to be channelled via income composition effects.