Monetary Policy and Income Inequality in the United States and Spain

Background Contractionary monetary policy has long term effects on inequality (Feldkircher & Kakamu, 2018). However, other forms of monetary policy do not have a clear effect on income inequality. Central banks defend the position that other factors are the driving forces behind income inequality (Powell, 2018). Methodology This investigation utilized ANOVA Regression analysis to determine if income inequality, as measured by wage growth by sector, is related to interest rates in the United States and Spain. If applicable, slopes of the regression lines for each sector were compared to see if they were significantly different, in a statistical sense. Results At interest rates above 0.4 percent in the United States, the Federal Funds Rate has asymmetric effects on the sectors studied. In Spain, there is no clear relationship between the European Central Bank (ECB) rate of discount and wage growth, so tests of the slope were not relevant. Conclusion In the United States, higher, or contractionary, rates of interest appear to have an impact on income inequality. This is in line with the results of previous studies