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Studies and Perspectives – ECLAC Subregional Headquarters in Mexico

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A multithematic series covering the outcomes of ECLAC studies and research. Prepared by: ECLAC subregional headquarters in Mexico. ISSN: 1680-8800.

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Distributional impacts of low for long interest rates

Distributional impacts of low for long interest rates

This paper asks whether tepid inflation in Canada since the financial crisis can in part be explained by the effects of monetary policy on inequality. Using different structural vector autoregression models we show that expansionary monetary policy post-crisis has offset otherwise falling inequality through the shifting of resources away from lower-income individuals, which in general have higher marginal propensities to consume. As a result, aggregate demand has not risen as much as it otherwise would have, leading to a more muted inflationary response. Our results suggest that failure to account for the heterogeneity of consumption responses across the income distribution...

  • Kronick, Jeremy M.
  • Villarreal, Francisco G.
July 2019
38 p.