Villarreal, Francisco G. (2014): Monetary Policy and Inequality in Mexico.
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Abstract
Despite growing interest regarding the distributive impact of macroeconomic policies, the relationship between monetary policy and inequality has received relatively little attention in the literature. This is partly explained by the fact that the workhorse model used for monetary policy analysis summarises the demandside of the economy by means of a representative agent, whose welfare is the normative criterion of optimal policy. However, alternative formulations using incomplete market models which feature heterogeneous agents, indicate that monetary policy does have an effect on the distribution of income, consumption and wealth, which potentially has implications for the design and conduct of optimal policy. The document empirically investigates the nature of the relationship between monetary policy and household income inequality in Mexico. The ultimate purpose is to uncover certain regularities which characterise the relationship, which can eventually serve as stylised facts for the design of theoretical models. The response of household's income inequality, and its components, to monetary policy shocks indicate that unanticipated increases in the nominal interest rate are correlated with a reduction of household income inequality in the short run, and that the effect dissipates over a twoyear horizon. The results are robust to the particular measure of inequality used, as well as the procedure used to identify the policy shocks.
Item Type:  MPRA Paper 

Original Title:  Monetary Policy and Inequality in Mexico 
Language:  English 
Keywords:  Monetary Policy, Income Distribution, Small Open Economy 
Subjects:  C  Mathematical and Quantitative Methods > C1  Econometric and Statistical Methods and Methodology: General D  Microeconomics > D3  Distribution E  Macroeconomics and Monetary Economics > E5  Monetary Policy, Central Banking, and the Supply of Money and Credit 
Item ID:  57074 
Depositing User:  Francisco G. Villarreal 
Date Deposited:  03 Jul 2014 18:24 
Last Modified:  28 Sep 2019 23:27 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/57074 
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