Simona Malovaná (Czech National Bank) - Macroprudential Policy and Income Inequality: The Trade-off Between Crisis Prevention and Credit Redistribution

BOFIT Seminar - Simona Malovaná (Czech National Bank) - Macroprudential Policy and Income Inequality: The Trade-off Between Crisis Prevention and Credit Redistribution

Co-authors: Jan Janků (Czech National Bank) and Martin Hodula (Czech National Bank)

Abstract
Using data on 105 countries from 1990 to 2019 and a lag-augmented local projection method, we document that macroprudential policy tightening affects income inequality through two key channels: the crisis mitigation and prevention channel and the credit redistribution channel. Through the first of these, tighter regulation during credit booms reduces income inequality and mitigates the redistributive effects of financial crises, reflecting the enhanced financial sector’s resilience. Through the second, it contributes to higher inequality due to its negative effect on credit growth and property prices. This has important policy implications: the timely implementation of macroprudential regulation has preventive effects and can contribute to a more equal distribution of society’s income.

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