Template-Type: ReDIF-Paper 1.0

Author-Name: Biljana Jovanovic
Author-Name-First: Biljana
Author-Name-Last: Jovanovic
Author-Email: biljana182001@yahoo.com
Author-Workplace-Name: National Bank of the Republic of North Macedonia
Author-Name: Marko Josimovski
Author-Name-First: Marko
Author-Name-Last: Josimovski
Author-Email: JosimovskiM@nbrm.mk
Author-Workplace-Name: National Bank of the Republic of North Macedonia

Title: Income-specific inflation rates and the effects of monetary policy: the case of North Macedonia

Abstract: In this paper, we investigate the effects of monetary policy concerning the inflation rates specific for each income group of households. We find that the prices specific for high-income households are generally more rigid and less volatile compared to the prices specific for middle and lower-income households. This means that monetary policy can differently affect the different inflation rates specific for each of the income groups. By using a Factor-Augmented VAR (FAVAR) model, we show that a monetary policy shock affects high-income households less compared to middle and lower-income households, although the differences between the separate income groups are generally small. Then, by using a small scale gap model, we find that the prices of low-income households are the most sensitive to a monetary policy shock, while the prices of the top-income households are the least sensitive to the shock, which is in line with our empirical findings. 

Length: 29

Creation-Date: 2021

File-URL: https://www.nbrm.mk/content/Income-specific-inflation-rates-and-the-effects-of-monetary-policy-the-case-of-NM-WP1-2021.pdf

File-Format: Application/pdf

File-Function: First version, 2021

Number: 2021-01

Classification-JEL: E31, E52
Keywords: Inflation, monetary policy, distributional effects
Handle: RePEc:mae:wpaper:2021-01