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Microdata for Macro Models: the Distributional Effects of Monetary Policy

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Abstract

In this paper we investigate the effect of standard and non-standard monetary policy implemented by the ECB on income inequality in Italy. We use for the first time the survey microdata on Income and Living Conditions (EU-SILC, Istat) in a repeated cross-section experiment to build measures of inequality and the distribution over time for incomes and subgroups of individuals. The identification strategy is based on surprises estimated in the EA-MPD database for the Euro Area. Using a battery of Local Projections, we evaluate the impact of monetary policy by comparing the performance of the impulse response functions of our inequality measures in different policy scenarios (pre and post-QE). The main findings show that an expansionary unconventional monetary policy shock compressed inequality of disposable and labor income more persistently than a conventional monetary shock. The financial channel has an equalizing effect favoring the less wealthy households mainly in the long-run. Overall, our evidence suggests that QE is associated with a decrease in Italian households inequality.

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  • Luisa Corrado & Daniela Fantozzi, 2020. "Microdata for Macro Models: the Distributional Effects of Monetary Policy," CEIS Research Paper 491, Tor Vergata University, CEIS, revised 03 Jun 2020.
    • Handle: RePEc:rtv:ceisrp:491
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    Keywords

    Income Inequality; Monetary Policy; Local Projections; Survey Data; High Frequency Data.;
    All these keywords.

    JEL classification:

    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth 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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