Do Monetary Policy Shocks Influence Income Inequality Dynamics in South Africa?

  • Eliphas Ndou
  • Thabo Mokoena


Evidence indicates that income inequality declines due to expansionary monetary policy shocks and the declines are significantly bigger when inflation is below 4.5 %, when it is within 4.5–6 %, below 3 % than above 6 %. A counterfactual analysis reveals that actual income inequality growth declines more in the presence of employment growth, economic growth, and household disposable income growth channels, than when these channels are shut off. This indicates that increases in employment growth, disposable income growth and GDP growth, following an expansionary monetary policy shock, amplify the reductions in income inequality growth. Recent studies suggest that having a solid grasp of the ways that monetary policy decisions, income inequality, and aggregate economy, are intertwined is important for an efficient design and implementation of monetary policy.


  1. Bivens, J. (2015). Gauging the impact of the fed on inequality during the recession (Brooking Institution Working Paper).Google Scholar
  2. Carney, M. (2016). Mark Carney’s right, not everyone benefits from free trade and globalisation—The semi-rich don’t.
  3. Coibion, O. (2012). Are the effects of monetary policy shocks big or small. American Economic Journal of Macroeconomics, 4(2), 1–32.CrossRefGoogle Scholar
  4. Coibion, O., Gorodnichenko, Y., Kueng, L., & Silvia, J. (2017). Innocent bystanders? Monetary policy and inequality in the US. Journal of Monetary Economics, 88, 70–89.CrossRefGoogle Scholar
  5. Colciago, A., Samarina, A., & de Haan, J. (2018). Central bank policies and income and wealth inequality: A Survey (De Nederlandsche Bank Working Paper No. 594).Google Scholar
  6. Furceri, D., & Loungani, P. (2018). The distributional effects of capital account liberalization. Journal of Development Economics, 130, 127–144.CrossRefGoogle Scholar
  7. Guerello, C. (2016). Conventional and unconventional monetary policy vs. Households income distribution: An empirical analysis for the euro area (mimeo).Google Scholar
  8. Gumata, N., & Ndou, E. (2017). Labour market and fiscal policy adjustments to shocks: The role and implications for price and financial stability in South Africa. Cham, Switzerland: Palgrave Macmillan.Google Scholar
  9. Huber, E., & Stephens, J. D. (2014, April 1). Income inequality and redistribution in post-industrial democracies: Demographic, economic and political determinants. Socio-Economic Review, 12(2), 245–267.Google Scholar
  10. Killian, L., & Vigfussion, R. (2011). Are the responses of the U.S. economy asymmetric in energy price increases and decreases? Quantitative Economics, 2, 419–453.CrossRefGoogle Scholar
  11. Koedijk, K., Loungani, P., & Monnin, P. (2017). Monetary policy, macroprudential regulation and inequality: An introduction to the special section. Journal of International Money and Finance, 85, 163–167. Google Scholar
  12. Monnin, P. (2017). Monetary policy, Macroprudential regulation and inequality (ECP, Discussion Note 2017/2).Google Scholar
  13. Mumtaz, H., & Theophilopolou, A. (2017). The impact of monetary policy on inequality in the UK. An empirical analysis. Eurpoean Economic Review, 98, 410–423.Google Scholar
  14. O’Farrell, R., Rawdanowicz, L., and Inaba, K. (2016). Monetary policy and inequality (OECD Economics Department Working Papers, No. 1281). OECD publishing Paris.Google Scholar
  15. Voinea, L., & Monnin, P. (2017, February 16). Inequality should matter for central banks (CEP).Google Scholar
  16. Zdzienicka, A., Chen, S., Diaz Kalan, F., Laseen, S., & Svirydzenk, K. (2015). Effects of monetary and macroprudential policies on financial conditions: Evidence from the United States (IMF Working Paper 15/288).Google Scholar

Copyright information

© The Author(s) 2019

Authors and Affiliations

  • Eliphas Ndou
    • 1
    • 3
    • 4
  • Thabo Mokoena
    • 2
  1. 1.Economic Research DepartmentSouth African Reserve BankPretoriaSouth Africa
  2. 2.Department of Economic, Small Business Development, Tourism and Environmental AffairsFree State Provincial GovernmentBloemfonteinSouth Africa
  3. 3.School of Economic and Business SciencesUniversity of the WitwatersrandJohannesburgSouth Africa
  4. 4.Wits Plus, Centre for Part-Time StudiesUniversity of the WitwatersrandJohannesburgSouth Africa

Personalised recommendations