Should Inequality Factor into Central Banks' Decisions?

Hansen, Niels-Jakob; Lin, Alessandro; Mano, Rui

doi:10.5089/9781513557649.001

Cited by 13 publications

(8 citation statements)

References 24 publications

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“…Lower inequality is associated with stronger effectiveness and higher homogeneity of monetary policy transmission (Voinea et al, 2017). Relatedly, Hansen et al (2020) use a tractable Two-Agent New Keynesian model that captures important dimensions of inequality and find some support for making inequality an explicit target for monetary policy. 7 In the South African context, monetary policy action aimed at maintaining low and stable inflation could reduce consumption inequality through several channels (Kganyago, 2018).…”

Section: Figure 1 Short-term Interest Rate and Inflationmentioning

confidence: 88%

Monetary Policy, Inflation, and Distributional Impact: South Africa’s Case

Miyajima¹

2021

IMF Working Papers

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The South African Reserve Bank has continued to fulfill its constitutional mandate to protect the value of the local currency by keeping inflation low and steady. This paper provides evidence that monetary policy tightening aimed at maintaining low and stable inflation could at the same time reduce consumption inequality over a 12-18 month horizon, commonly understood as the transmission lag of monetary policy action to the real economy, and similar to the distance between survey waves used in the analysis. In response to "exogenous" monetary policy tightening, the real consumption of individuals at lower ends of the consumption distribution declines relatively modestly, or even increases. With greater reliance on government transfers, thus smaller reliance on labor income, and relatively larger food consumption, these individuals appear to benefit mainly from lower inflation. By contrast, the real consumption of individuals at higher ends of the consumption distribution is more likely to decline due to lower labor income, weaker asset price performance, and higher debt service cost.

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Section: Figure 1 Short-term Interest Rate and Inflationmentioning

confidence: 88%

Monetary Policy, Inflation, and Distributional Impact: South Africa’s Case

Miyajima¹

2021

IMF Working Papers

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“…To better understand policy effects on inequality, future research should focus on the estimation and analytics of general equilibrium models with heterogeneous agents (Kaplan, Moll, and Violante 2018;Colciago, Samarina, and de Haan 2019). One such recent study found that making consumption equality an explicit target for monetary policy, particularly if central banks follow standard Taylor rules, can increase welfare compared with the case in which inequality is not part of the mandate of a central bank (Hansen, Lin, and Mano 2020). Clearly, more work is needed in this area.…”

Section: B Monetary Policymentioning

confidence: 99%

Macroeconomic Stability, Adjustment, and Debt

Davoodi¹,

Montiel²,

Ter-Martirosyan³

2021

How to Achieve Inclusive Growth

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The chapter surveys the literature on the relationship between macroeconomic stability and inclusive growth and identify gaps in our knowledge. It examines the role of macroeconomic policies (fiscal, monetary, macroprudential, and exchange rate) and measures of inclusiveness (income inequality, consumption inequality, wealth inequality, poverty, and unemployment) across countries at different income levels. Avoiding procyclical macroeconomic policies and mitigating macroeconomic volatility should be on the agenda of all policymakers concerned with promoting inclusive growth. The emerging theory and evidence suggest a strong role for macroeconomic policies in shaping inclusive growth, both in the short-run and the long-run. The two-way relationship between the macroeconomy and inequality underscores the challenge of identifying and estimating causal relationships. Models with heterogeneous agents have much to offer in this area.

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Section: B Monetary Policymentioning

confidence: 99%

How to Achieve Inclusive Growth

2021

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Rising inequality and widespread poverty, social unrest and polarization, gender and ethnic disparities, declining social mobility, economic fragility, unbalanced growth due to technology and globalization, and existential danger from climate change are urgent global concerns of our day. These issues are intertwined. They therefore require a holistic framework to examine their interplay and bring the various strands together. This book brings together leading academic economists and experts from several international institutions to explain the sources and scale of these challenges. The book summarizes a wide array of empirical evidence and country experiences, lays out practical policy solutions, and devises a comprehensive and unified plan of action for combatting these economic and social disparities. This authoritative book is accessible to policy makers, students, and the general public interested in how to craft a brighter future by building a sustainable, green, and inclusive society in the years ahead.

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Should Inequality Factor into Central Banks' Decisions?

Cited by 13 publications

References 24 publications

Monetary Policy, Inflation, and Distributional Impact: South Africa’s Case

Monetary Policy, Inflation, and Distributional Impact: South Africa’s Case

Macroeconomic Stability, Adjustment, and Debt

How to Achieve Inclusive Growth

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