Unveiling the Asymmetric Nexus: Monetary Policy and Income Inequality in Nigeria

Abstract

Over the past few years, the deterioration in income distribution has remained a significant impediment to achieving the Sustainable Development Goal 10 (SDG-10), thereby necessitating a global policy discourse among policymakers and scholars to make collaborative commitments to address income inequality concerns. While there is growing scholarly evidence on the linkages between monetary policy and income inequality, empirical examination of asymmetric monetary–income inequality remains elusive in the literature. This study seeks to address this gap in the literature by exploring the asymmetric nexus between monetary policy and income inequality in Nigeria from 1980 to 2020 employing a nonlinear autoregressive distributed lag (NARDL) approach. The empirical outcomes demonstrate that the adoption of both monetary policy stances has different effects on income inequality in Nigeria. Specifically, the findings indicate that resorting to contractionary (interest rate) and expansionary (money supply) monetary policies is more effective in ameliorating income inequality in Nigeria. This research offers insightful implications for policymakers regarding the implementation of effective monetary policy and equitable distribution of income in Nigeria.