The Influence of Monetary and Macroprudential Policy on Inequality in a Liquidity Trap

Inequality has rised since 1970s in developed countries. The policy of central banks did not concerned researchers as a factor of rising inequality until financial crisis in 2007-2008, but since then this topic has gained great popularity. At the same time, countries that found themselves in a situation of interest rates close to zero began to introduce new regulatory measures – unconventional monetary policy instruments and macroprudential restrictions. The influence of these measures on income distribution is a topic of discussion. This study is aimed to determine the impact of new monetary tools on the distribution of citizens’ income. Data collection was completed for 21 countries that are considered to be in the liquidity trap. The empirical model assessing panel data for 2000-2017 period included a variety of indicators measuring inequality, income amount and share of low-income and wealthy households. Results show that unconventional monetary policy instruments have no significant effect on inequality. The increase in tightening macroprudential restrictions reduces inequality in the post-crisis period, but it is more likely to increase the income distribution gap in a stable economic environment. Joint effect of the instruments also does not affect the income allocation.