A1687
Title: Cyclicality of income growth distribution and the role of monetary policy
Authors: Yaz Terajima - Bank of Canada (Canada) [presenting]
Carolyn Wilkins - Princeton University (Canada)
Abstract: The focus is on the implications of monetary policy for income inequality by asking the following questions: How does monetary policy impact the distribution of household income growth, and how would the policy interact with the business-cycle implications for the distribution? We use comprehensive income information from the Canadian administrative tax records to document how income changes with the business cycle, estimate the impacts of monetary policy shocks on income changes by the income distribution and by the major source of income, and assess how much monetary policy accounts for the income changes across the income distribution. Our findings confirm and broaden those of the literature in that the mean and the skewness of the income-growth distribution are significantly pro-cyclical, while the variance is weakly so and, hence, not counter-cyclical. We find that monetary policy tightening persistently lowers the growth of income for high-income households more than for lower-income households, reducing income inequality. Finally, monetary policy impacts the income of households with non-professional business and investment income as the major income source more than those with labour earnings.
