EMPLOYMENT PAPER 2001/29 Is inflation bad for income inequality: The importance of the initial rate of inflation
نویسنده
چکیده
This paper explores theoretically and empirically the effects of monetary policy and inflation on income inequality in developed economies. The few empirical studies touching on this issue have given conflicting answers, and the impact on inequality remains puzzling. In an attempt to solve this puzzle we argue that the effects of monetary policy and inflation on inequality depend on the initial rate of inflation. Though in high inflation countries restrictive monetary policy is often beneficial for inequality, reducing inflation in economies with initially low inflation might increase inequality. Empirical investigations for the US and a sample of 15 OECD countries seem to support this hypothesis. This paper was written while Rossana Galli was visiting ILO. Comments can be sent to [email protected] or to [email protected].
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