Effects of Monetary Policy on Income Distribution: Evidence from Brazil

André de Melo Modenesi, Kleyton Da Costa, Bernardo Modenesi, Norberto Montani, Sylvio Kappes, Fernando Nogueira da Costa

Abstract:

This article investigates the impact of monetary policy on income distribution in Brazil.
Income inequality affects both developed and underdeveloped economies, but its
presence in the latter has a greater impact on vulnerable segments of society. The
investigation of this phenomenon is critical for directing economic policies aimed at
mitigating its adverse effects. We use macroeconomic variables and a Gini index
calculated from microdata to measure income distribution. Our analysis employs vector
autoregressive and Bayesian vector autoregressive approaches, regression analysis, and
causality tests to find evidence of the impact of monetary policy on income distribution
in the Brazilian case. The results show that a shock to SELIC and inflation positively
impacts the Gini index, increasing inequality within a 95% confidence interval. However,
an increase in economic activity and job generation has a negative impact on the Gini
index, reducing income inequality observed in the economy.