"How Do Macroaggregates and Income Distribution Interact Dynamically? A Novel Structural Mixed Autoregression with Aggregate and Functional Variables"

This paper investigates the interactions between macroeconomic aggregates and income distribution by developing a structural VAR model with functional variables. With this novel empirical approach, we are able to analyze the effects of various shocks to the income distribution on macro aggregates as well as the effects of macroeconomic shocks on the income distribution. Main findings are as follows. First, contractionary monetary policy shocks improve income inequality, when we focus on the re-distributive effect beyond the negative aggregate level effect, by reducing the number of low and high income people while increasing the number of middle income people; however, contractionary monetary policy shocks worsen income inequality when the aggregate income shift is taken into account. Second, shocks to income distribution potentially have a substantial effect on output fluctuations.

Reference papers: "A Trajectories-Based Approach to Measuring Intergenerational Mobility"; "Oil and the Stock Market Revisited: A mixed functional VAR approach"

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