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2019 | OriginalPaper | Chapter

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

Authors : Eliphas Ndou, Thabo Mokoena

Published in: Inequality, Output-Inflation Trade-Off and Economic Policy Uncertainty

Publisher: Springer International Publishing

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Abstract

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.

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previous chapter Does the Income Inequality Channel Impact the Transmission of Monetary Policy Shocks to Economic Activity?
next chapter Does Trade Openness Impact the Link Between Monetary Policy and Both Income Inequality and Consumption Inequalities?
Footnotes
1
These would benefit more from monetary policy action that boosts labour returns more than returns on capital.
 
2
See also Coibion et al. (2017).
 
3
O’Farrell et al. (2016) found a 1 percentage point decrease in the policy rate decreases the Gini coefficient by up to 0.02% after 3 years. In addition, Guerello (2016) finds similar results for the Euro area. See also Colciago et al. (2018) for comparison.
 
Literature
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Coibion, O. (2012). Are the effects of monetary policy shocks big or small. American Economic Journal of Macroeconomics, 4(2), 1–32.CrossRef
Coibion, O., Gorodnichenko, Y., Kueng, L., & Silvia, J. (2017). Innocent bystanders? Monetary policy and inequality in the US. Journal of Monetary Economics, 88, 70–89.CrossRef
Colciago, A., Samarina, A., & de Haan, J. (2018). Central bank policies and income and wealth inequality: A Survey (De Nederlandsche Bank Working Paper No. 594).
Furceri, D., & Loungani, P. (2018). The distributional effects of capital account liberalization. Journal of Development Economics, 130, 127–144.CrossRef
Guerello, C. (2016). Conventional and unconventional monetary policy vs. Households income distribution: An empirical analysis for the euro area (mimeo).
Gumata, N., & Ndou, E. (2017). Labour market and fiscal policy adjustments to shocks: The role and implications for price and financial stability in South Africa. Cham, Switzerland: Palgrave Macmillan.
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Mumtaz, H., & Theophilopolou, A. (2017). The impact of monetary policy on inequality in the UK. An empirical analysis. Eurpoean Economic Review, 98, 410–423.
O’Farrell, R., Rawdanowicz, L., and Inaba, K. (2016). Monetary policy and inequality (OECD Economics Department Working Papers, No. 1281). OECD publishing Paris.
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Metadata
Title
Do Monetary Policy Shocks Influence Income Inequality Dynamics in South Africa?
Authors
Eliphas Ndou
Thabo Mokoena
Copyright Year
2019
Book
Inequality, Output-Inflation Trade-Off and Economic Policy Uncertainty

Print ISBN: 978-3-030-19802-2

Electronic ISBN: 978-3-030-19803-9

Copyright Year: 2019

DOI
https://doi.org/10.1007/978-3-030-19803-9_5