Three Essays on Monetary Policy, Income Inequality, and Capital Flows

This dissertation is a collection of essays centered on monetary policy and central bank institutions and how they affect capital flows and income inequality. The first chapter concerns household debt and income inequality, which are both effected by the interest rate environment. As such, the high leverage ratio of households outside the top end of the income distribution has led many economists to assert that household debt has been an important component of the increase in income inequality in the United States. Mason and Jayadev (2014) define 3 variables that may affect household debt: an effective interest rate measure, inflation, and economic growth. Mason and Jayadev identify these as Fisher Dynamics. The first chapter examines, using a VAR methodology, how the Fisher Dynamics affect income inequality in the United States, through a debt channel, over the period 1929 to 2009. The results indicate that increases in the effective interest rate measure increase income inequality; whereas, increases in income growth tend to decrease income inequality. The inflation channel contribution contributes negatively to income inequality, but the statistical significance is not consistent across the two inequality measures and model specifications.;The second chapter investigates monetary policy\u27s spillover effect on the economy of an emerging economy: South Africa. The second chapter, particularly examines the impact of the Federal Reserve\u27s quantitative easing program from 2009 to 2014 on the economy of South Africa. A qualitative background is provided on the policy actions of the South African Reserve Bank and, quantitatively, a VAR model, including South Africa\u27s inflation, output, a stock market index, exchange rate, and South Africa\u27s policy rate, is examined to determine the impact of the Federal Reserve\u27s actions. The chapter\u27s results show that the Federal Reserve\u27s quantitative easing programs had different effects on South Africa\u27s economy than regular Federal Reserve easing programs. Namely, the effects between the periods were similar, but quantitative easing caused much larger effects on the economic variables in terms of magnitude.;Finally, chapter three examines the effect of central bank reforms on capital flows into international economies. The third chapter models the effect of a rise in a central bank\u27s independence on foreign direct investment and portfolio investment using panel data. The estimates show that a rise in independence leads to a small but statistically significant rise in foreign direct investment as a percentage of GDP. The estimates for portfolio investment are positive but not statistically significant. The results indicate that the institutional structure of monetary authorities may be important for foreign investors