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No. 738: Monetary Policy and Inequality in the UK

Haroon Mumtaz , Queen Mary University of London
Angeliki Theophilopoulou , University of Westminister

February 19, 2015

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Abstract

The UK has experienced a dramatic increase in earnings and income inequality over the past four
decades. We use detailed micro level information to construct historical measures of inequality
from 1968 to 2008. We study whether monetary policy shocks played a significant role in explaining
this increase before and after 1993. We find that contractionary monetary policy shocks lead to a
deterioration in earnings and income inequality and contribute to its fluctuation. Our evidence
suggest that this effect is smaller during the inflation targeting period.

J.E.L classification codes: E2, E3, E4, E5

Keywords:Inequality, Earnings, Income, Mixed frequency Bayesian SVAR, Monetary policy shocks

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