A1389
Title: The effects of monetary policy shocks on inequality in Japan
Authors: Tomoaki Yamada - Meiji University (Japan) [presenting]
Nao Sudo - Bank of Japan (Japan)
Masayuki Inui - Brown University (Japan)
Abstract: The impacts of monetary easing on inequality have been attracting increasing attention recently. The micro-level data is used on Japanese households to study the distributional effects of monetary policy. A quarterly series of income and consumption inequality measures are constructed from 1981 to 2008, and their response is estimated to monetary policy shock. It is found that monetary policy shocks do not have a statistically significant impact on inequality across Japanese households in a stable manner. When considering inequality across households whose head is employed, evidence is found that, before the 2000s, an expansionary monetary policy shock increased income inequality through a rise in earnings inequality. Such procyclical responses are, however, scarcely observed when the current data are included in the sample period or when earnings inequality across all households is considered. It is also found that the transmission of income inequality to consumption inequality is minor, including when the procyclicality of income inequality was pronounced. Using a two-sector dynamic general equilibrium model with attached labor inputs shows that labor market flexibility is central to the dynamics of income inequality after monetary policy shocks. The micro-level data on household balance sheets are also used, and distributions of households' financial assets and liabilities are shown to not play a significant role in the distributional effects of monetary policy.
