IMPACT OF INCOME INEQUALITY ON THE TRANSMISSION MECHANISM OF MONETARY POLICY

Abstract

This study explores how disparities in income influence the effectiveness of monetary policy transmission in Nigeria. Monetary policy is a central instrument in stabilizing the economy, implemented via channels such as interest rates, credit access, exchange rates, and asset prices. However, growing income inequality has raised concerns about whether these transmission mechanisms operate uniformly across different income groups. Utilizing data from 2010 to 2025, the study investigates how income disparity affects the channels through which monetary policy is transmitted. The findings reveal that income inequality can significantly mute the effectiveness of these mechanisms, particularly the credit and interest rate channels, as poorer households are more credit-constrained. The study recommends inclusive financial systems, targeted credit policies, and income redistribution strategies to enhance monetary policy efficiency and foster equitable economic development.