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MONETARY POLICY AND INCOME DISTRIBUTION: An empirical exercise on personal and functional income distribution.<\/strong><\/strong><\/strong><\/p>\n\n\n\n Resumo:<\/strong><\/p>\n\n\n\n This thesis provides an extensive empirical assessment of the impact of monetary policy on the personal and functional income distributions, based on difference-in-differences (DiD) methods adapted to the monetary policy context. To the best of our knowledge, this is the first study to empirically evaluate the effects of monetary policy through generalized DiD methods. Despite the extensive tradition of DiD in economics, the novelty of this approach lies in the inherent structure of monetary policy, which imposes a directional dimension (expansionary and contractionary) as well as a magnitude dimension. This multidimensional feature introduces substantive complexities for adapting monetary policy to the event-treatment structure of the DiD framework. The thesis proposes a set of strategies for this adaptation, generating novel evidence for the literature on the personal income distribution (where the empirical findings remain non-consensual) and on the functional income distribution (where empirical evidence is scarce). Monetary policy shocks are identified and adjusted, in the baseline model, through a standardization procedure (Z-score) based on monetary regimes and orthogonal to the central bank’s decision function. These shocks are categorized, and the control group is identified by deviations below a non-significance threshold of the effects. To estimate the distributional response, we employ a distributed-lag two-way fixed-effects (DL-TWFE) model and a DiD with local projection (DiD-LP). Given the methodological primacy of this exercise, the thesis further proposes a set of robustness exercises well established in the literature – the local projection (LP) and the structural vector autoregression (SVAR) – whose results, in addition to being compared with the baseline models, deliver methodological, empirical, and substantive contributions to the literature. Based on a panel of sixteen advanced economies over 1970 2019, the overall findings point to robust and persistent distributional effects of monetary policy. For the personal income distribution, we document the role of the fiscal redistribution channel, through which the tax structure and the government transfer system attenuate the adverse distributional impact of contractionary shocks. The effects are more pronounced at the tails of the distribution, where contractionary shocks tend to raise inequality and expansionary shocks tend to reduce it. On the methodological side, the DiD-LP emerges as the preferred design for horizon-specific estimation in the monetary policy context. For the functional income distribution, contractionary shocks persistently reduce the wage share, in line with the post Keynesian tradition of long-run non-neutrality: contractionary policies disproportionately harm workers, whereas the effects of expansionary shocks are more evenly distributed across the two classes. The policy implications are substantive. For fiscal policy, the results support the use of countercyclical instruments to attenuate the distributional impact of monetary policy. For central banks, the results suggest that the fiscal structure (particularly the welfare state) may attenuate the effectiveness of the policy rate in achieving its macroeconomic objectives, thereby reinforcing the ongoing debate on whether personal and functional income inequality should be incorporated into the central bank’s reaction function
Keywords:<\/strong> Monetary Policy. Post-Keynesian Economics. Macroeconomics. Monetary Policy Shock. Empirical Analysis. Difference-in-Difference (DiD). Local Projection.<\/p>\n\n\n\n