Does Monetary Policy Impact the Effects of Shares of Manufacturing Employment Shocks on Income Inequality?

Abstract

Evidence reveals that unexpected increase in the manufacturing, tradeable, and mining sector employment shares, leads to significant reduction in income inequality. The reduction in income inequality, due to shocks from these sectors’ employment shares, is amplified by low inflationary environment (that is, the consumer price inflation below or equal to 6 %). In addition, the reduction in income inequality is further amplified by the low repo rate level when consumer price inflation is below the 6 % threshold. This evidence reveals that inflation regimes matter for expansionary monetary policy to influence the reduction in income inequality due to improved manufacturing sector employment share.