Template-Type: ReDIF-Paper 1.0
Author-Name: Jaanika Meriküll
Author-X-Name-First: Jaanika
Author-X-Name-Last: Meriküll
Author-Name: Matthias Rottner
Author-X-Name-First: Matthias
Author-X-Name-Last: Rottner
Title: Monetary policy and earnings inequality: inflation dependencies
Abstract: This paper studies the distributional effects of monetary policy and its dependence on inflation. We document a novel dependency in the earnings heterogeneity channel of monetary policy using high-frequency, administrative tax data from eurozone member Estonia. Monetary policy shocks substantially influence earnings inequality during high-inflation periods, with weaker effects during low-inflation periods. Extending our dataset with granular MPC estimates, we show that earnings heterogeneity amplifies the aggregate MPC and consumption response. In high-inflation periods, consumption and inequality respond more, even though the aggregate MPC may be lower. We rationalise our findings with a nonlinear tractable HANK model featuring inflation dependencies.
Creation-Date: 2025-06
File-URL: https://www.bis.org/publ/work1271.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work1271.htm
File-Format: text/html
Number: 1271
Keywords: monetary policy, labour income inequality, inflation, state dependency, earnings heterogeneity channel, aggregate MPC
Classification-JEL: E52, D31, J31, J63
Handle: RePEc:bis:biswps:1271