Monetary Policy Transmission Mechanism: The Role of Household Heterogeneity and Spatial Effects

Abstract

The paper investigates the impact of regional economic inequality, including income and asset structure of the population, on the efficiency of the monetary policy transmission mechanism in Russia, namely, the interest rate and credit channels. The analysis is based on data from 81 regions of Russia for the period from January 2017 to January 2025 using panel data spatial models. The results show that the monetary policy transmission mechanism is more effective in regions with a high share of labour income and a low share of transfers in the income structure, a low share of the poor, and a high share of households able to purchase durable goods and build up financial assets. In addition, efficiency is higher in regions less dependent on agriculture and SMEs due to the availability of subsidised lending programmes for these sectors. The impact of income inequality on monetary policy transmission in one region extends to its neighbours, which may be related to migration flows, resource shifts, as well as regions’ sectoral specialisation. Despite the shocks of recent years and the structural adjustment of the economy, estimation results show the effectiveness of monetary policy transmission.