Does Monetary Policy Affect Income Inequality in the Euro Area?

This paper examines how the ECB's expansionary monetary policy affects income inequality in 10 euro area countries over the period 1999–2014. We distinguish two channels—labor-market and financial—through which monetary policy can have distributional effects. The labor-market channel is captured by wages and employment and the financial channel by asset prices and returns. We find that expansionary monetary policy in the euro area reduces income inequality, especially in the periphery countries. The labor-market channel enhances the equalizing effect: monetary expansion reduces income inequality stronger by raising wages and employment. There is limited evidence for the financial channel.