Exchange rate changes and income distribution in 41 countries: Asymmetry analysis

Due to the slow adjustment of wages to inflationary effects of currency depreciation, income could be shifted from workers to producers. Could currency appreciation do the opposite? We investigate the asymmetric effects of exchange rate changes on a measure of income distribution in each of the 41 countries for which a GINI coefficient is available. Applying recent asymmetry error-correction modeling and asymmetry cointegration of Shin et al. (2014) provides support for short-run asymmetric effects in 34 countries and long-run asymmetric effects in 22 countries, a unique discovery that was masked by previous research. The asymmetric effects revealed that while depreciations had unequalizing effects in 10 countries, they had equalizing effects in only five countries.