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IMPACT OF MONETARY POLICY IN INCOME INEQUALITY: EVIDENCE FROM BRAZIL.
Brazil is ranked among the world’s most unequal countries and has high income disparities. Recent research shows that monetary policy has a redistribution effect that is non-homogeneous across individuals. Although it is true that individuals will save more when the interest rate is higher and will likely spend more otherwise, when one take into consideration that there are different marginal propensities to consume, the outcomes resulting of a monetary shock, for each type of agent, will vary. Besides the traditional channels (aggregate income and substitution channel), interest rates will also affect people depending on their income composition; prices and depending on their unhedged interest rate exposure.
In order to investigate the relationship of monetary policy on income inequality in Brazil for the period between 2000 to 2018, we used the capital-labor ratio as well as monthly data for GDP, inflation rate, exchange rate and interest rate in a bayesian time-varying autoregressive vector model with stochastic volatility. A time-varying framework allows to capture both changes in the coefficients, which can occur, for example, due to changes in the monetary authority behavior. Besides, the stochastic volatility setup allows to capture changes in the economy shocks.
We found out that the positive response of the capital-labor ratio to monetary shocks is significant and lasts more than a year, i.e., a contractionary shock leads to an increase in income inequality, even when considering for different periods. These results suggest that interest rate shocks have a non-negligible effect on inequality.
Desigualdade de renda. Choques de política monetária. TVP-VAR.
Estatística Aplicada em Ciências Sociais Aplicadas e Demografia e Estatísticas Públicas
Aishameriane Venes Schmidt, Guilherme Valle Moura