Sophia Anastasia Latsos
- Redistribution effects of ultra-loose monetary policy
- Real wage effects of expansionary monetary policy
- Unconventional monetary policy and income inequality
- Demographic effects of loose monetary policy
Project at DIJ
Does Unconventional Monetary Policy Increase Income Inequality? Lessons from Japan
Ultra-loose, unconventional monetary policy may be one of the most important regulative answers to the global financial crisis and European sovereign debt crisis. However, such policy may have unintended consequences. For example, persistently low short-term and long-term interest rates decrease the profitability of pension funds. This results in inter-generational redistribution effects that would particularly affect aging societies. Furthermore, the cheap accumulation of sovereign debt is another redistribution effect of continuous monetary easing (financial repression).
Following the burst of the bubble economy (1999), the Bank of Japan has pursued unconventional monetary policy as crisis therapy. This may offer valuable policy implications. Ever since the start of these policies, redistribution effects emerged as nominal and real wages have decreased while asset prices have increased. Although the negative real wage trend concerns the majority of households, rising asset prices only benefit a relatively small group (top income holders owning financial assets). Therefore, the question rises whether the monetary policy of the Bank of Japan may influence income inequality.
Following the existing literature, my empirical analysis shall estimate the effect of a positive monetary shock on a measure of income distribution, such as the Gini coefficient. In order to capture the Japanese income distribution, it is necessary to use income and wealth data. Income data are taken from the “Basic Survey on Wage Structure“ (BSWS) provided by the Ministry of Health, Labor and Wealth (MHLW). In contrast, existing research has so far not considered wealth data; the latter are also not included in the BSWS. Hence, I aim to request this data from the Institute for Research on Household Economics und the Ministry of Internal Affairs and Communication.