Exploring the Dynamic Shock of Unconventional Monetary Policy Channels on Income Inequality: A Panel VAR Approach

Round 1

Reviewer 1 Report

Referee report for “Exploring the Dynamic Shock of Unconventional Monetary 2 Policy Channels on Income Inequality: A Panel VAR approach”

This paper investigates the dynamic effects of unconventional monetary policies (UMP) on income inequality, through three main channels identified in the related literature, i.e., earning heterogeneity, income composition and portfolio channels, using a PVAR model. I believe the study investigates an interesting question; also, the paper is well-written, and I read it with increased interest. However, I have the following concerns.

Main comment

1) The authors should elaborate more on the identification of the UMP shocks. I have serious concerns regarding the identification of the UMP shocks. For example, the authors find that an increase in unemployment results to an increase in income inequality, reflecting the effect of the earnings heterogeneity channel. However, I strongly believe that this result could not be interpreted easily without identifying that the increase in unemployment came as a result of the unconventional monetary policy. For instance, an increase in unemployment could be the outcome of the recession during the financial crisis or an increase in house prices could be the outcome of an overvaluation period. Moreover, the related literature, (see, e.g., Evgenidis and Fasianos, 2021 and Inui et al, 2017), use specific variables to identify UMP changes. For example, Evgenidis and Fasianos (2021) use the SSR (short-term shadow rate) and present the IRFs of the response of Gini coefficient to one standard deviation shock in the shadow rate.

Other comments

2) I missed a short discussion in the literature review section about the effects of the macroprudential policies (MAPs) on income inequality, on top of the conventional and unconventional monetary policy effects (see, e.g., Carpantier et al (2018), Frost and Van Stralen (2018) and Konstantinou et al. (2021)). Macroprudential policy has been widely adopted by the central banks, especially after the global financial crisis, to mitigate the potential damage caused by systemic crises in the banking sector and their diffusion into the real economy, while MAPs were widely used by the developing and emerging markets before the financial crisis.

3) The authors could use additional measures of income inequality, as a robustness check. For example, they could use the Atkinson index, Theil’s T index or the Palma ratio to examine if their results remain the same (see, e.g., Lahoti et al, 2016 and McGregor et al, 2019)

4) The authors should correct some typos. For example, sections 2.1 and 2.2 have the same title.

5) Some references are missing from the References section (e.g., Evgenidis and Fasianos, 2021).

References

Carpantier JF, Olivera J, Van Kerm P (2018) Macroprudential policy and household wealth inequality. Journal of International Money and Finance 85:262–277

Evgenidis, A., & Fasianos, A. (2021). Unconventional monetary policy and wealth inequalities in Great Britain. Oxford Bulletin of Economics and Statistics, 83(1), 115-175.

Frost J and van Stralen R (2018) Macroprudential policy and income inequality. Journal of International Money and Finance, 5:278–290

Konstantinou, P., Rizos, A., and Stratopoulou, A. (2021). Macroprudential policies and income inequality in former transition economies. Economic Change and Restructuring, 1-58

Lahoti R, Jayadev A, Reddy S (2016) The Global Consumption and Income Project (GCIP): an overview. J Global Develop 7(1):61–108

McGregor T, Smith B, Wills S (2019) Measuring inequality. Oxford Rev Econ Policy 35(3):368–395

Author Response

Please see the attached

Author Response File: Author Response.pdf

Reviewer 2 Report

Recommendations for Manuscript  socsci-1788648  „Exploring the Dynamic Shock of Unconventional Monetary Policy Channels on Income Inequality: A Panel VAR approach” for the Social Sciences Journal.

General Comments

From my point of view, it is a very interesting topic and simultaneously it seems that to the best of my knowledge is the first empirical research which proposes to examine the dynamic shock of unconventional monetary policies through earning heterogeneity, income composition, and portfolio channels on income inequality in emerging economies covering the period 2000–2019, using the panel vector autoregressive (PVAR) model. The results suggest that the UMPs used by these countries' central banks may have increased income inequality through all of the channels investigated in this study, as a shock to unconventional monetary policy results in a positive response in income inequality.

The paper contains the following sections: Introduction, Theoretical Framework, Methodological and Data, Analysis of results and data analysis and Conclusion.

However, I find some recommendations:

1.       The abstract must contain the main purpose of the paper, the research method used in the research and the main contributions.

2.       It would be very useful to add in the "Introduction" section the purpose, objectives and hypothesis of the research. I consider that a weak point of the paper is that the authors did not show the novelty of the paper compared to other works. That is why, I consider that the introduction should specify the novelty of the paper compared to other papers published in this area.

3.       The research is well based on science and the results are in agreement with the theoretical part. The model applied to the analyzed data is correctly used in the analysis undertaken, it is a strength point of this paper.  

4.       At the same time, the authors are required to present Descriptive Statistics, Correlation matrix with all tests and indicators: standard deviation, Jarqe-Berra, Skewness and Kurtosis interpretation, Jarqe-Berra with probabilities analysis, etc.

5.            It is important to present the VIF test on multicollinearity between independent variables. Heteroskedasticity and endogeneity tests are also important in this study. All these aspects that are not found in the paper represent weaknesses of the research.

6.       I think that the literature needs to be improved with other recent works, refers to the companies listed on the stock market.  That is why I recommend the authors to refer to other recent works indexed in Web of Science, Scopus, Emerald and Cambrige Journals. We suggest that the authors cite papers published in Web of Science Journals, such as:

1.       Batrancea, L.; Rus, M.I.; Masca, E.S.; Morar, I.D. Fiscal Pressure as a Trigger of Financial Performance for the Energy Industry: An Empirical Investigation across a 16-Year Period. Energies 2021, 14, 3769. https://doi.org/10.3390/en14133769

2.       Batrancea, L., Rathnaswamy, M.K. & Batrancea, I. A Panel Data Analysis on Determinants of Economic Growth in Seven Non-BCBS Countries. J Knowl Econ (2021). https://doi.org/10.1007/s13132-021-00785-y

7.       Based on the data obtained, the conclusions must be extended.

In conclusion, the article should be improve. It should also be enhanced with a review of the literature adequate to the subject and a broader interpretation and commentary of the research results.

Author Response

Please see the attached

Author Response File: Author Response.pdf

Round 2

Reviewer 1 Report

I believe that the authors tried to address all the issues of their paper and took into account my previous comments. 

I would like only to suggest a better matching with the references. For instance, Frost and Van Stralen paper has published in 2018 and not in 2017, while Konstantinou et al. paper published in 2022 (and not in 2021). Please check the references.

Author Response

Thank you for your valuable comments pertaining the blunders we made on the reference list.

We have checked all the referenced together with the in-text/citation in the entire document for correction purposes.