Effects of monetary policy shocks on income mobility in the Euro area countries

Abstract

This paper examines the impacts of monetary policy shocks on income mobility in the Euro area, relying on earnings heterogeneity and income composition channels through which monetary policy affects income distribution. From a relative mobility perspective, upward and downward mobility are estimated over the period 2004-2014 for the EMU countries that originated the Economic and Monetary Union (EMU 1999). By using a vector error correction model (VECM) approach, overall we find that an expansionary monetary policy seems to encourage upward mobility and discourage downward mobility. By income groups, a loose monetary policy appears to reduce downward mobility for the upper class, while no empirical evidence can be provided to support that monetary policy shocks alter upward mobility for the lower class. Monetary policy shocks are especially favourable for the middle class as an expansionary monetary policy seems to boost upward mobility. A detailed analysis of the middle class shows that an expansionary monetary policy may propel the upward mobility and hinder the downward mobility of the lower-middle class, particularly favouring this income group.

Labour market flexibilization and income distribution in Europe

“…167-185 human capital and competences; also profit-led and export-led growth). In addition to political processes and behaviours, institutional inertia, changes and social conventions about inequality; macroeconomic policies, labour market institutions and regulations, macroeconomic conditions (mainly, inflation and unemployment rates), redistribution policies, changes in taxation, public spending and social policies, and immigration (Josifidis, Supić, and Emilija Beker Pucar 2017;Kristal and Cohen 2017;Anthony Roberts and Roy Kwon 2017;Manuel Carlos Nogueira and Óscar Afonso 2018;Elena Bárcena-Martín, Natalia Martín-Fuentes, and Salvador Pérez-Moreno 2019;Ennis, Gonzaha, and Pike 2019;Furceri and Ostry 2019;Nolan, Matteo G. Richiardi, and Valenzuela 2019;Natalija Novta and Evgenia Pugacheva 2019;Josifidis, Supić, and Slađana Bodor 2020;Göran Therborn 2020;Tridico 2020).…”