Analyses the Effect of Monetary Policy Transmission on the Inequality in OECD Countries

Journal of Environmental Treatment Techniques

2020, Volume 8, Issue 2, Pages: 589-596

J. Environ. Treat. Tech.

ISSN: 2309-1185

Journal web link: http://www.jett.dormaj.com

Analyses the Effect of Monetary Policy Transmission

on the Inequality in OECD Countries

Mohammad Farajnezhad *, Suresh A/L Ramakrishnan , Mani Shehni Karam Zadeh

Azman Hashim International Business school (AHIBS), Universiti Teknologi Malaysia, Jalan sultan Yahya Petra, 54100, Kuala Lumpur

A.James Clarks School of Engineering, University of Maryland, College. Park, 1131 Glenn Martin Hall, College Park, MD 20742

Received: 16/08/2019

Accepted: 17/01/2019

Published: 20/02/2020

Abstract

The aim of this article is to analyze the inequality impacts of monetary policy transmission in OECD countries’ economy from 2001 to

017. Panel regression model has been applied for the hypotheses test. Information gathering has been based on the country's basic

information, i.e the data required for research are generally derived from the library method, using the World Bank website. The econometric

method used in this research, is Generalized Torque Method. Dependent variable Gini coefficient index is considered as an indicator of

income inequality and independent variables of monetary transfer mechanisms include interest rates, liquidity, exchange rates, the gold price,

the legal reserves of the central bank and the banks' debt to the central bank. The results show that the interest impact of monetary transfer

mechanism at the Gini coefficient as an indifference index in OECD countries is positive and insignificant (probability is 0.18) with a

coefficient of 0.004 and it shows that raising interest rates will increase the inequality in these countries. Additionally, the effect of the capital

market on the inequality is also positive with a coefficient of 0.001 and a significant probability of 0.002. It shows the positive effect of bank

deposits on income inequality.

Keywords: Monetary Policy Transmission, Inequality, OECD countries

intended profit for transferring the tax burden to depositors and

Introduction¹

borrowers. This will lead to a separate monetary mechanism

which cannot be controlled easily by monetary authorities and

decreases the performance range of the intended instrument to

some extent (5).

Suitable macroeconomic policies have different outlets on

income distribution. Monetary policies and its transition

mechanisms are among the most important parts of the impact on

poverty and the distribution of income (1). The goals of the

mechanism of monetary policy transmission are to grasp its aims,

for instance, manageable economic growth and producing a stable

price (2). The understanding of how monetary policy works and

the way it impacts the economy is a key factor to stabilize multiple

economic aspects (3). Monetary authorities have various

instruments to implement the monetary policy. Generally

speaking, these instruments are divided into two groups: direct

and indirect or qualitative and quantitative (4). The effects of

using each instrument in controlling the money stock and

subsequently achieving the monetary policy goals are different.

Indirect instruments of monetary policy are:

- Rediscount rate: it controls the money supply indirectly. Its

advantage is that its changes by the central bank can quickly be

effective on the interest rate. Another advantage of this instrument

is that it influences the power of banks in granting credit. Hence,

its effects are more comprehensive than other instruments. At the

same time, the use of this instrument can have side effects on the

profit of commercial banks too.

- Open market operations: it is an effective method to control

money supply in countries that have developed securities and

money markets. Flexibility in the degree of the central bank

intervention in the money market, its period and developing the

money market through demand increase, are some advantages of

this instrument. Moreover, the exchanges in this field based on

the predetermined market rate are voluntary and do not have tax

effects, unlike the bank reserves ratio. But in the central bank

state, it is the decision-maker just at the time of buying the

securities. The use of this instrument helps control the credits

which are granted by banks to people and institutions to some

extent. Change in the commission of various bank operations is

one of the effective methods to control the volume of granted

credits by banks from the demand side.

- Bank reserves ratio: it has lower flexibility than other

monetary policy instruments and the use of it can lead to a

disturbance in the banking system. For this reason, it is usually

recommended to use this instrument for long-term fluctuations in

the supply of money, not the short-term ones. Frequent changes

in the above-mentioned ratio may encourage the banks to keep

additional surplus to be able to neutralize monetary controls.

Also, the banks lose one part of the interest of loan that is granted

to the private sector by increasing of bank reserves ratio. Under

such circumstances, the banks may take action to achieve the

Determining the maximum profit has a considerable effect on

Corresponding author: Mohammad Farajnezhad, Azman Hashim International B usiness school (AHIBS), Universiti Teknologi Malaysia,

Jalan sultan Yahya Petra, 54100, Kuala Lumpur. E-mail: taban1010@gmail.com; fmohmmad5@live.utm.my.

Journal of Environmental Treatment Techniques

2020, Volume 8, Issue 2, Pages: 589-596

financial sources of the banking system and as a result the volume

of their granted credits via its effects on savings and deposits of

the private sector (6). Although direct control of credits can be

effective in preventing extension of credit in the short-term it may

have some expenses in terms of resource allocation. This is

because determining the credit line decreases the competition

among the banks in granting loans and facilities. Besides, credit

rationing prevents free cash flow in the economy and decreases

its efficiency. Determining the credit line due to not fulfilment of

business opportunities can be led to the formation of markets that

are not under control by the central bank.

expanding wealth inequality with rising benefit of portfolio

investments(19) and (20). However, several economists argue

that this is for the larger public good, as the positive impacts of

quantitative easing exceed the possible negative effects (19).

According to Draghi (2015), advocated the quantitative easing

systems maintaining that inequality would have been even greater

in their lack. Besides, Bernanke (6) described that the Feds

monetary policy supported economic growth and job creation,

which favor mostly the middle class, but accepted that easy

monetary policy increased asset prices, that are owned mainly by

highest income households. Also, the study by Stiglitz (21)

maintains that the method monetary policy has already been

carried out has asymmetric impacts: it seems that workers do not

make up in the recovery what they lose in the downturn.

Via perceiving that the individual’s income relies on

efficiency which peaks at maturity, Bullard (22) began his study

of the association between monetary policy and income

inequality. Productivity is low at the starting of working life and

retirement and as a result, income is decreased. The scholar

observes that income must be calculated for the individual whole

life, and it cannot be based on a moment in time. He inferred that

quantitative easing enhanced equity prices, but had no harmful

influences on inequality as wealth is transferred to future

generations. Brounen, Koedijk (23), specified the lower

households' tendency to keep for older people and this could

change across generations remarkably.

This somewhat revised tenet is being challenged for several

reasons in the aftermath of the crisis. There exists growing

evidence that inequality before the crisis gave rise to (aggravated)

the financial crisis (24-26). The pattern of capitalism is switching

again in support of re- adjust for stance the banking sector, and

economic knowledge itself is examining its restrictions and

writing its handbooks again. The latest equilibrium is low for

long, and, as IMF (2016) is placing it today. There is a mixture of

deleveraging, low inflation, high-indebted, recession, high

inequalities, fewer opportunities, high structural pressure. Also,

long-run money neutrality may be argued faster. Other central

banks guidelines might affect income and wealth distribution

except for the unconventional monetary policies. Capital account

liberalization (if conducted very quick and in the absence of

backstops) increases inequality and raises the risk of inequalities

Despite the disadvantages of direct tools of monetary policy,

these instruments are still be applied after the indirect instruments

are introduced. One of the reasons for more efficiency of indirect

instruments is that they prevent the growth in unofficial sectors

that diminish the share of financial assets controlled by the central

bank, unlike direct controls. As indirect instruments act via the

market, they create more effectiveness in the use of the monetary

policy. To achieve the monetary policy goals, a mix of its

instruments is usually used. This mix depends much on the degree

of development and extension of the monetary and money

markets. Empirical evidence reveals that open market operations

in advanced countries which have developed money and capital

markets have more efficiency than other instruments. But in

developing countries, several instruments are usually used to

control the money supply because of the lack of efficient money

and monetary markets. In these countries, the government's

lending from the central bank for supplying the budget deficit and

absence of independence of the central bank on the one side and

high influence of the global conditions on economy of such

countries on the other side have been led to some difficulties for

monetary authorities in controlling and directing the monetary

base. Due to this issue, successful implementation of the

monetary policy in achieving the intended objectives is faced with

many problems such as high inflation rates, production

volatilities, increased unemployment, and unequal income

distribution even if a favourable mix of various monetary

instruments is selected. According to the above information, the

goal of this study is the analyses the monetary policy impact

transmission on the inequality in OECD countries.

(

27). Inequality is increased as a result of too high or too low

Literature review

inflation rates. Monnin (28) noted that lower inequality is the

result of higher inflation rate, but only up to a certain point. By

means of data for the US economy, the study by (29) has been

showed that wealth is distributed again from banks to borrowers

via when there is a inflation fluctuations, the liabilities and assets

are declining real value. When the inequality is rising, the interest

rate in high. According to Rognlie and Auclert (30), the finding

has been shown that there is three channel of monetary policy

impacts on the consumption of household including: interest rate

exposure, earning heterogeneity, and unexpected inflation. It is

well documented that interest rate exposures facilitate the

monetary policy transmission. (31, 32) inferred that monetary

policy has a direct effect on households’ disposable income when

loans have changeable interest rates.

Economists have long paid attention to inequality, as

researchers have considered the association among inequality and

economic growth. Inequality exceeds its social aspect and affects

the performance of the economy. Kuznets (7), notably paid

attention to a reversed U-shape among economic growth and

inequality. Piketty and Saez (8), noticed when the output growth

is less than return on capital, inequality rises. There is extensive

practical help for the concept that higher imbalance of income

supply might decrease growth of economic and damage its

sustainability (9-15), documented the benefits of lower inequality

for human capital. Other studies distinguished between emerging

and developed countries regarding the association between

economic growth and inequality (16, 17).

Nonetheless, this theory is about to change, for the value of

central banks themselves and under new limitations. The primary

contravention in the conventional way of defines has been

established through the inadvertent redistributive outcomes of the

unconventional monetary policy, like income shift from

depositors to debtors because of lower interest rates (18), and

Highly indebted households modify their consumption to the

shifts in interest rates. The researchers assume that when

households are indebted and have mortgages with modifiable

interest rates, monetary policy has a robust effect on the real

economy. Also, inequality is raised due to high volatility in

Journal of Environmental Treatment Techniques

2020, Volume 8, Issue 2, Pages: 589-596

exchange rates, particularly when households are indebted in a

foreign currency that is a recurrent case in developing Europe

outside the euro area.

Financial instability increases inequality too. By extending

the study with the financial stability aim of the central banks,

Masciandaro and Passarelli (4), noticed the trade-off among price

and financial stability. The researchers concluded that both have

redistributive implications. However, policies of central banks are

segment of a policy combination, altogether with structural,

fiscal, and budgetary guidelines. In another study, Ball, Furceri

conceived as a rapid and continuous increase in prices, majority

economists approve that with Friedman's idea that inflation can

be considered a monetary occurrence everywhere. Hence, three

types of inflation are separable: cost-push inflation, demand-pull

inflation, and budget deficit inflation via borrowing from the

central bank (money issuance). About production cost inflation,

it has been argued that cost-push inflation is considered a

monetary occurrence as well since, in this state, the government

increases demand to prevent production decline and employment

level.

(5) concluded that fiscal merging increases inequality via higher

unemployment and lower salaries. Also, indebted households

have a low size to attract wage cuts when the economy joins into

recession (33). The researchers considered that lower disposable

income balances the drop of debt service even if decreasing

interest rates reduce the debt burden for households. Therefore,

the attempts of high-indebted households to deleverage

throughout slump are endangered by decreasing disposable

income. Alternatively, times of robust growth of credit were

related to higher asset prices, contributing to a rise in debtors'

wealth. d'Alessio and Iezzi (34), point out that over indebtedness

gives rise to social deprivation and poverty and might even result

in instability in the financial system. Based on the study of (35),

the periods of robust income growth for the highest wealthy

households, occurred with sizable growth of indebtedness for the

rest of the people could stimulate financial crisis. According to

3.1 Monetary policy and interest rate

According to classical economists, monetary policy is not

effective on the real interest rate. Although cash injection in the

economy may decrease the interest rate for a short period, this

probably raises the price level.

In contrast, Keynesians believe that fluctuations in the supply

of money are led to changes in the interest rate. Following the

appearance of unemployment, prices and money wages are

decreased. If money stock is not decreased in reaction to such

conditions, the monetary reserve surplus will decrease interest

rate which will encourage investment and the economy returns to

full employment as domestic investment is one of the key

determinants of economic growth and flourishment (38). From

this viewpoint, adjustments in the supply of money will have

permanent impacts on the real interest rate. Effects of monetary

growth on interest rate depend on whether the monetary policy is

permanent or temporary (Meltzer, 1995). If changes of the

monetary reserve are permanent, four types of effect can be

explained: the effect of granting loan, liquidity, income impact

and price expectations.

Real and nominal interest rates are reduced because of the

development of granting a loan. Based on the liquidity impact,

reduction of interest rate is essential for money market settlement

by assuming that price level and income are fixed following the

increase of monetary reserve. As a result, the income effect of

reducing nominal and real interest rates is led to income increase.

If it is assumed that no change is created in real variables by

executing the monetary policy, the nominal interest rate is

expected to be increased equal to the effect of price expectations.

But if money growth is changed temporarily, no change is

expected at the general price level. In this state, money effects on

the interest rate are similar to its permanent effects. The difference

is that the expected effects of price are neutralized. Thus, if

temporary effects of the expansionary monetary policy are

accepted, inflation effects of these policies are modified via wage

change and will not finally have any effect on the employment

level and poverty adjustment in the long term.

(22), the income inequality is lower than wealth inequality, and

subsequently the consumption inequality is lower than the wealth

inequality. Also, through having access to credit markets to use

extra on debt when people are still young and they make low

income, resulted in smooth consumption among this group

throughout their lifetime.

Effectiveness mechanisms of monetary policies

The main phenomenon of expansionary monetary policy is

inflation. (36) stated that using the expansionary monetary policy

particularly in the short run will upsurge the price level and

impacts on household’s income. Negative effects of expansionary

monetary policy on income distribution have relatively been

confirmed in all other studies as well. One of the dominant

theories on the association between money growth and the general

price level is quantity theory of money that was proposed as a

referable rule by classical economists including David Ricardo in

the 19th century. According to this theory, the general price level

is changed proportionally to changing of the money stock. This

viewpoint presumes that the velocity of money and the volume of

the production are fixed. However, the developing of money

theories questioned the assumption of the fixed velocity of

money. New theoreticians of this school consider the concept of

sustainability of velocity of money instead of its stability because

the factors which change it act slowly so that its changes are

predictable and identifiable. Inflation is created when the

monetary reserve is increased considerably faster than

production.

.2 Credit policies

Extension of credit is one of the determinants of final demand.

Developing domestic productions in response to changes in total

demand via bank credits and capital markets depends on the

economic structure. Potential domestic supply, employment

status, degree of use of capital, technology level and degree of

replacement of import goods instead of domestic productions in

total demand are all effective on the effectiveness of credit

policies on production and employment.

When there is unemployment, increasing of domestic credits

through demand stimulation and at the same time its effect on the

interest rate can develop employment provided that increasing of

Exploring the behavior of inflation and money stock growth

in many countries indicates that experience of high inflation rates

in these countries has been accompanied by the high growth of

money stock (37). However, the viewpoint of Keynesians and

monetary theoreticians about the inflation method is not so

different. Both consider that high inflation rates are the outcome

of the high growth of monetary reserve. Thus, if inflation is

Journal of Environmental Treatment Techniques

2020, Volume 8, Issue 2, Pages: 589-596

prices is not responded via supplying of import goods and other

manufacturing restrictions are not disclosed. About the countries

that do not have active and organized markets, the role of credit

allocation in the process of manufacturing and employment is

more important. The manufacturing sectors in such economies

mainly act in small scales and these units use unofficial credit

markets to supply cash working capital due to inefficiency of the

market mechanism in credit allocation. Naturally, they will be

faced with higher interest rates than the official markets. Hence,

increasing of cost of supplying short-term financial resources

encounters these sectors with reduced competitiveness and is

often led to their bankruptcy which often creates jobs and has a

major role in earning money of low-income groups.

Effectiveness paths of monetary policy on real variables can

be divided into channels of interest rate changes, fluctuations in

asset prices, and credits volume. Monetary policy from the path

of change in asset prices is usually effective on total demand

through the impact of foreign exchange rate on net export (wealth

effects and Tobin's Q theory). Domestic deposits (in terms of

domestic currency) will have less attraction than other deposits

Which Gini, the dependence variable, is the Inequality index

and other variables are transmission monetary policy indices like

interest rate (er), stock return of financial market (financial

Market), gold price (Gold), Liquidity or money volume

(Liquidity), International Reserve of central bank (Reserves) and

Monetary policy. The statistical method utilized in this research

is the panel data method of OECD countries. Information

gathering has been based on the country's basic information, i.e

information and the data required for research are generally

derived from the library method, using the World Bank website

(WDI). The econometric method used in this research,

Generalized Torque Method (GMM) which in this way equations

that estimate their unobservable effects in each country and the

existence of a dependent variable in the explanatory variables is a

fundamental problem the generalized estimator (GMM), which is

based on dynamic panel models, is used. This technique is

necessary to evaluation the model using of this method first, the

variables that are used in the model are specified. The GMM

estimator compatibility is validated by the hypothesis that the

error statements are not auto-correlated and the tools depend on

that can be tested by dual tests specified by (42). The first test of

the Sargan test is from predetermined limits which test the

validity of the tools. The second is M which tests the existence of

second-order serial correlations in first-order difference-

difference errors. Dependent variable Gini coefficient index

which is an indicator of income inequality and independent

variables of monetary transfer mechanisms consist of: interest

rates, liquidity, exchange rates, the gold price, the legal reserves

of the central bank and the banks' debt to the central bank. The

study period is from 2001 to 2017.

(in terms of foreign currencies) due to the reduction of real

interest rate following the expansionary monetary policy and their

value is decreased relatively. This weakens the domestic money.

Under such circumstances, net export and production are

expected to be increased. Depending on how employment

elasticity in the export sector and totally in production is, the

effect of this mechanism on poverty will be different. Small

enterprises which are exposed to more financial constraints (at the

same time, they include the main part of the poor labor force) are

more influenced by the monetary policy from the channel of

increased credits (39, 40).

Increasing expected prices at the time of frequent use of

expansionary monetary policy is led to an unpredicted increase in

prices. The power and motivation for lending are raised under

such conditions. Finally, the impact of monetary policy on the

liquidity of households is one of the effective paths of monetary

policy on real variables. Although most of the discussion on the

effect of credits has been focused on business expenses, they are

as important as the monetary policy effectiveness. Expansionary

monetary policy can increase the stock price and thus, the worth

of financial assets. In this state, consumers' durable goods

expenditure like the building is raised. Of course, this effect is

converse for households who keep their assets in cash (mainly

poor groups) because of their decreased purchasing power of

assets. If the resultant of these effects is positive, the investment

will be increased by increasing the expenditure on durable goods

and as a result, expansionary monetary policy will raise total

demand. Many economists believe that channel of credits is more

important in influencing the economic variables.

Empirical results and discussion

Before estimating the model, in this part the trend of some

variables like Gini index as inequality in some countries of OECD

and some variables of transmission monetary policy as liquidity

and central bank liability of OECD will be following. As Figure1.

Shown the index as inequality in some countries of OECD, most

of the countries are in range of 0.25 to 0.4. In the next figure, it

showed the liquidity index as a transmission monetary policy. As

shown in Figure 2, liquidity index as a transmission monetary

policy in some countries of OECD, this index is increasing in this

period. The next figure, it shown the Central bank liability index

as a transmission monetary policy. As shown in Figure 3. Central

bank liability index as a monetary policy transmission in some

countries of OECD; Source, this index in some countries like

Netherland is increasing.

.1 Stationary test

The usual methods of econometric studies in empirical work

are based on the assumption of the Stationary factors; because

there is a possibility that the estimate is false with non-invariant

variables and citing the results of such estimates will lead to

misleading results (43). In this study, Levin Lin Chu’s statistics

were used. Brief of the finds of this test, assuming the factors of

the trend and width of the source, it is presented in Table (1).

Based on the finds of this table and the calculated probability

levels, it is concluded that all variables are monitored at the level.

Empirical Specification and Data

In this study, the type of study is of an applied type;

accordingly, a multivariate linear regression model has been

applied for the hypotheses testing. The econometric model of this

study based on the Inui, Sudou (41), show the impact of monetary

policy transmission on the inequality as following:

퐺푖푛푖_ꢀ_푡= 훼 + 훼 푒푟 + 훼 푓푖푛푎푛푐푖푎푙푀푎푟푘푒ꢁ + 훼 퐺표푙푑 +

ꢀ푡

훼 퐿푖푞푢푖푑푖ꢁ푦 + 훼 푅푒푠푒푟푣푒푠 + 훼 푀표푛푒ꢁ푎푟푦 + 휀

ꢀ푡

(1)

ꢀ푡

Journal of Environmental Treatment Techniques

2020, Volume 8, Issue 2, Pages: 589-596

.45

.35

.25

.15

Netherlands

Norway

Poland

Portugal

Slovak Republic

Slovenia

Spain

Sweden

Switzerland

Turkey

.05

United Kingdom

005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Figure 1: Gini index in some countries of OECD; Source; WDI 2019

E+11

.8E+11

.6E+11

.4E+11

.2E+11

United Kingdom

Turkey

Switzerland

Sweden

Spain

E+11

E+10

Slovenia

Slovak Republic

Portugal

Poland

Netherlands

Mexico

005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Figure 2: Liquidity index as a monetary policy transmission in some countries of OECD; Source; WDI 2019

Journal of Environmental Treatment Techniques

2020, Volume 8, Issue 2, Pages: 589-596

E+10

Netherlands

New Zealand

Norway

Poland

Portugal

Slovak Republic

Slovenia

Spain

Sweden

Turkey

005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Figure 3: Central bank liability index as a monetary policy transmission in some countries of OECD; Source; WDI 2019

Table 1: Stationary result

Levin Lin Chu's statistic

5.3 Estimated Model Analyses

In this study, the GMM method was used in panel data the

model is used to estimate the pattern. Estimated pattern results in

this study is presented in Table 3. it is necessary to estimate the

model by this method first, the variables that are used in the model

are specified. Parental statistics the Sargan test is a pre-

determined constraint which tests the validity of the tools.

Variables

Result

Prob

0.000

0.001

0.010

0.005

0.007

0.000

Statistic

-14.79

-2.89

-2.19

-2.06

-2.80

-2.41

-5.06

Gini Index

I (0)

interest rate

Capital market return

Liquidity

Table 2: Arlano and Band test results

Bank reserves

Central bank debt

Self-correlation of disorder

Z statistic

-12.ꢀ

Prob

621ꢀ

62.1

Gold price

Source: Research findings

-12ꢁ1

Source: Research findings

.2 Autocorrelation test

In order to determine the degree of self-correlation of disorder

It should be noted that the Sargan (44), has been

overestimated and is used to determine any kind of correlation

between tools and errors. For tools to be valid, there should be no

correlation between tools and error sentences. Additionally, the

zero hypotheses of the parent statistics of the Sargan test (tool

variables that are independent of the pattern are not correlated

with waste) cannot be rejected, and hence it can be said that the

variables used in this model are appropriate.

The Sargan statistical test is used to test the correlation of

wastes. It uses a chi-square distribution and the test statistic has a

degree of freedom which is equal to the number of predictor

variables of the pattern, rejects the zero test for the correlation of

waste. As a result, the validity of the results is verified for

interpretation. Separately, the results are as follows:

sentences, the Arlano and band test statistics are applied, and the

results are shown in Table 2. According to the results of Table 2,

we see that the hypothesis is zero, the lack of self-affiliation in the

sentences of the discrete disorder has not been rejected and so

Arlan and Bond's method an appropriate method for estimating

model parameters and eliminating static effects. In other words,

with a degree of differentiation from the sentences of the disorder,

the serial correlation between components of the disrupted

sentences and the sentences of the disordered disorder have no

first and second-order autocorrelation.

Journal of Environmental Treatment Techniques

2020, Volume 8, Issue 2, Pages: 589-596

Table 3: Results of estimating regression by GMM method (dependent variable: Gini coefficient)

Variable

Coefficient

Std. Err

p >|t|

95% Conf

Interval

Gini

Interest rate

financial market

Gold

0.0043212

0.0017879

-1.70E-12

-3.73E-12

1.55E-10

4.37E-14

3.52E+01

7.5740797

1.5166556

0.9614485

270.49

0.0032541

0.0005789

1.26E-12

2.31E-12

6.93E-11

7.27E-14

1.26E+00

1.33

3.09

-1.36

-1.62

2.23

0.60

27.83

0.186

0.002

0.178

0.108

0.027

0.548

0.00

-0.0020952

0.0006464

-4.17E-12

-8.29E-12

1.82E-11

0.007376

0.0029294

7.79E-13

8.23E-13

2.92E-10

1.87E-13

3.77E+01

International liquidity

International reserves

Monetary policy

Cons

-9.95E-14

3.27E+01

sigma_u

sigma_e

rho

F-test

Prob

0.00

Source: Research findings

The results show that the effect of interest rate variable as a

monetary mechanism transfer on the Gini coefficient as an

indifference index in OECD countries it is positive and

insignificant (probability is 0.18) with a coefficient of 0.004 and

it shows that raising interest rates will increase the inequality in

these countries. Also, the research results show the effect of the

capital market the inequality is also positive with a coefficient of

considered for the monetary policy effectiveness on improving

income distribution and poverty conditions (45). The first and the

most important channel is that implementing the expansionary

monetary policy in a certain period increases average income in

that period and decreases poverty directly. This is because

increasing the average income will decrease the number of people

below the poverty line. This result will be accurate by assuming

that income distribution is fixed in the short-term. Second,

monetary policy can have short-term benefits for the poor through

the reduction of the unemployment rate and increasing of

participation rate of the labor force as well as real wage among

the workers who have low skills.

.001 and a significant probability of 0.002. The results also

display the impact of bank deposits on income inequality. Poverty

and inequality are influenced by the changing of nominal and real

variables.

On the other hand, poor income is mainly obtained from

transfer payments than other people in society. As such kind of

payments is less affected by periodical changes, implementing of

monetary policy may worsen the status of income distribution and

will, at last, be to the detriment of the poor. Thus, the expected

effects of monetary policy on improving poverty conditions from

the second channel are less than the first one. Third, inflation

following the expansionary monetary policy can worsen income

distribution through reduction of the real value of wages and

transfer payments and will, at last, be to the detriment of the poor.

If expected inflation and its extensive changes are led to

uncertainty about the output of manufacturing activities and

prosperity of activities which have private benefits more than

social benefits, they can result in lower employment level.

Continuity of high inflation in the macroeconomy environment

can influence the poor more than other groups because expected

inflation is led to the transfer of resources to early return and

nonproductive sectors. Therefore, long-term investments are

influenced more than other cases.

Conclusion

According to classical theories, implementing the monetary

policy will just have price changes. From this perspective,

monetary policy will influence distribution through price

changes. If the change in total demand mix is in the benefit of

capital-intensive goods (because of reduced interest rate), poverty

is influenced via decreased demand for labor force too. New

classics consider the rational expectations theory and flexibility

of wages and maintain that the supply curve is horizontal if

monetary and financial policies are predictable. Therefore, these

policies are not effective in real variables. But if the above-

mentioned policies have occurred unpredictably and

unexpectedly, the supply curve will have a positive slope and

these policies can change real variables. Finally, due to the total

adjustment of expectations, the supply curve becomes horizontal

and the effect of such policies on real variables is neutralized.

In contrast, Keynesians believe that a nominal increase in

money stock instead of a certain price level upsurge the real

money supply. Therefore, the equilibrium interest rate is reduced,

and investment and production will be increased. Therefore,

employment (poor group) and income can be improved. The

budget deficit policy, however, is more secure in achieving this

objective, because the reduction of interest rate does not

necessarily improve investment. Three channels can be

Acknowledgment

Journal editorial dotard thanks following reviewers to review

this article.

Journal of Environmental Treatment Techniques

2020, Volume 8, Issue 2, Pages: 589-596

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