Abstract
Evidence reveals that positive trade openness shock reduces both the income and consumption inequalities. Evidence from counterfactual VAR models which shut off the trade openness variables in transmitting contractionary monetary policy shocks to income inequality, reveals that the counterfactual income inequality growth rises more than the actual reaction. This suggests that trade openness channel dampens the rising income inequality due to contractionary monetary policy shock. The trade openness channel mitigates the increase in income inequality by nearly half of the peak increase, following contractionary monetary policy shock.
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Notes
- 1.
The WEO (2007) revealed that trade openness lowered income inequality and the results were robust to the use of exports growth shocks.
References
Dutt, A. K., & Mukhopadhyay, K. (2009). International institutions, globalisation and inequality among nations. Progress in Development, 9(4).
World Economic Outlook, October 2007: Globalization and Inequality. https://books.google.co.za/books?isbn=1451923856.
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Ndou, E., Mokoena, T. (2019). Does Trade Openness Impact the Link Between Monetary Policy and Both Income Inequality and Consumption Inequalities?. In: Inequality, Output-Inflation Trade-Off and Economic Policy Uncertainty . Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-19803-9_6
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DOI: https://doi.org/10.1007/978-3-030-19803-9_6
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Publisher Name: Palgrave Macmillan, Cham
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Online ISBN: 978-3-030-19803-9
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