The effectiveness of monetary and fiscal policy shocks on U.S. inequality: the role of uncertainty

  • Goodness C. Aye
  • Matthew W. Clance
  • Rangan Gupta
Article
  • 44 Downloads

Abstract

The study examines the effect of monetary and fiscal policy on inequality conditioned on low and high uncertainty. We use U.S. quarterly time series data on different measures of income, labour earnings, consumption and total expenditure inequality as well as economic uncertainty. Our analysis is based on the impulse responses from the local projection methods that enable us to recover a smoothed average of the underlying impulse response functions. The results show that both contractionary monetary and fiscal policies increase inequality, and in the presence of relatively higher levels of uncertainty, the effectiveness of both policies is weakened. Thus, pointing to the need for policy-makers to be aware of the level of uncertainty while conducting economic policies in the U.S.

Keywords

Inequality Monetary and fiscal policies Uncertainty 

JEL Classification

C22 E24 E40 E62 

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© Springer Science+Business Media B.V., part of Springer Nature 2018

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of PretoriaPretoriaSouth Africa

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