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Macroprudential Policy and Income Inequality: The Trade-off Between Crisis Prevention and Credit Redistribution

Author

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  • Simona Malovana
  • Jan Janku
  • Martin Hodula

Abstract

We estimate the impact of macroprudential policy on income inequality for a panel of 105 countries over the 1990-2019 period. We document that macroprudential tightening can have both upward and downward effects on income distribution, with the direction of the effect depending on the type of instrument used and a broader set of macro-financial conditions. We identify and empirically verify two channels - the crisis mitigation and prevention channel and the credit redistribution channel. Through the first one, tighter regulation ahead of the crisis reduces income inequality and mitigates the redistributive effects of financial crises, reflecting the increased resilience of the financial sector. Through the second one, it contributes to greater inequality due to its negative effect on credit and house price growth. This has an important policy implication: the timely implementation of macroprudential regulation has preventive effects and can contribute to a more equal distribution of society's income.

Suggested Citation

  • Simona Malovana & Jan Janku & Martin Hodula, 2023. "Macroprudential Policy and Income Inequality: The Trade-off Between Crisis Prevention and Credit Redistribution," Working Papers 2023/3, Czech National Bank.
    • Handle: RePEc:cnb:wpaper:2023/3
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    File URL: https://www.cnb.cz/export/sites/cnb/en/economic-research/.galleries/research_publications/cnb_wp/cnbwp_2023_03.pdf
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    References listed on IDEAS

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    Cited by:

    1. Jiri Gregor, 2024. "A Stress Test Approach to the Calibration of Borrower-Based Measures: A Case Study of the Czech Republic," Working Papers 2024/2, Czech National Bank.

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    More about this item

    Keywords

    Credit redistribution; crisis prevention; income inequality; local projections; macroprudential policy;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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