5. Do Monetary Policy Shocks Influence Income Inequality Dynamics in South Africa?

Evidence indicates that income inequality declines due to expansionary monetary policy shocks and the declines are significantly bigger when inflation is below 4.5 %, when it is within 4.5–6 %, below 3 % than above 6 %. A counterfactual analysis reveals that actual income inequality growth declines more in the presence of employment growth, economic growth, and household disposable income growth channels, than when these channels are shut off. This indicates that increases in employment growth, disposable income growth and GDP growth, following an expansionary monetary policy shock, amplify the reductions in income inequality growth. Recent studies suggest that having a solid grasp of the ways that monetary policy decisions, income inequality, and aggregate economy, are intertwined is important for an efficient design and implementation of monetary policy.