The Effects of Monetary Policy on Income Inequality: Evidence from Germany

This paper studies the effects of conventional and unconventional monetary policy on income inequality in post-reunification Germany. Using the policy rate set by the Bundesbank from 1991 to 1998 and the ECB’s main refinancing operations rate from 1999 to 2018 as the measure of conventional monetary policy, while quantitative easing is proxied by the 10-year German government bond yield, an autoregressive distributed lag (ADL) model is estimated with OLS to assess the impact of these variables on the Gini coefficient. The findings indicate that expansionary conventional monetary policy, that is, a reduction of the policy rate set by the central bank, is inequality-decreasing. On the other hand, unconventional monetary policy measures have a positive effect on the Gini coefficient in Germany from 1991 to 2018.