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Effects of Monetary Policy Shocks on Inequality in Japan

May 10, 2017
Masayuki Inui*1
Nao Sudo*2
Tomoaki Yamada*3


Impacts of monetary easing on inequality have recently attracted increasing attention. In this paper, we use the micro-level data of Japanese households to study the distributional effects of monetary policy. We construct quarterly series of income and consumption inequality measures from 1981 to 2008, and estimate their response to a monetary policy shock. We do find that monetary policy shocks do not have statistically significant impacts on inequalities across Japanese households in a stable manner. We find evidence, when considering inequality across households whose head is employed, an expansionary monetary policy shock increased income inequality through a rise in earnings inequality, in the period before the 2000s. Such procyclical responses are, however, scarcely observed when the current data is included in the sample period, or when earnings inequality across all households is considered. We also find that, transmission of income inequality to consumption inequality is minor even during the period when procyclicality of income inequality was pronounced. Using a two-sector dynamic general equilibrium model with attached labor inputs, we show that labor market flexibility is the central to the dynamics of income inequality after monetary policy shocks. We also use the micro-level data of households' balance sheet and show that distributions of households' financial assets and liabilities do not play a significant role in the distributional effects of monetary policy.

Monetary Policy; Income inequality; Consumption inequality

JEL classification
E3, E4, E5

The authors would like to thank L. Gambacorta, H. Ichiue, T. Kurozumi, G. La Cava, H. Seitani, M. Saito, M. Suzuki, K. Ueda, T. Yoshiba, and participants of seminar at the Bank for International Settlements, the Bank of Japan, and the Ecole des Hautes Etudes en Sciences Sociales, for their useful comments. The authors also would like to thank L. Krippner and Y. Ueno for providing the data of the shadow rates, and thank Y. Gorodnichenko for providing the inequality data of the U.S. We acknowledge the Statistics Bureau of the Ministry of Internal Affairs and Communications for the use of the Family Income and Expenditure Survey, and the Central Council for Financial Services Information for the use of the Survey of Household Finances, respectively. Sudo completed parts of this project while visiting the Bank for International Settlements under the Central Bank Research Fellow-ship programme. Yamada acknowledges financial support from the Ministry of Education, Science, Sports, and Culture, Grant-in-Aid for Scientific Research (C) 17K03632. The views expressed in this paper are those of the authors and do not necessarily reflect the official views of the Bank of Japan.

  1. *1Monetary Affairs Department, Bank of Japan
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  2. *2Monetary Affairs Department, Bank of Japan
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  3. *3School of Commerce, Meiji University
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