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Does Monetary Policy Affect Income Distribution? Local Projection Evidence from Turkey

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  • Ayşegül Şahin
  • Ilyas Siklar

Abstract

The relationship between monetary policy and inequality has received limited attention in the economics literature. This study aims to contribute to the literature by examining the relationship between monetary policy and income inequality in developing countries, specifically by analysing the results of the Turkish experiment. The local projection method was used to determine the relationship between monetary policy shocks, obtained through the VAR model, and the calculated inequality measures. The main findings of the study suggest that monetary policy can potentially influence the distribution of total income, particularly when the monetary policy shock is significant. The results indicate that monetary policy has a significant impact on income distribution, favouring property income. Moreover, this effect is most pronounced among the highest-income group, highlighting the heterogeneous nature of the impact across different income groups. However, the middle 20% group experiences the sharpest deterioration in income distribution following monetary policy shocks.

Suggested Citation

  • Ayşegül Şahin & Ilyas Siklar, 2025. "Does Monetary Policy Affect Income Distribution? Local Projection Evidence from Turkey," Politická ekonomie, Prague University of Economics and Business, vol. 2025(1), pages 125-151.
    • Handle: RePEc:prg:jnlpol:v:2025:y:2025:i:1:id:1453:p:125-151
    DOI: 10.18267/j.polek.1453
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    More about this item

    Keywords

    Income distribution; monetary policy shocks; local projection; Turkey;
    All these keywords.

    JEL classification:

    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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