Microsoft Word - inflation_cover

Central banks in developing countries are increasingly turning to maintaining a low inflation rate as the central target of monetary policy, without much consideration for how these policies impact the real economy – outcomes like employment, investment and economic growth. In this paper, we consider the employment costs of inflation reduction in developing countries from a gender perspective. We explore two broad empirical questions: (1) what is the impact of inflation reduction on employment, and is the impact different for women and men, and (2) how are monetary policy indicators (e.g. real interest rates) connected to deflationary episodes and gender-specific employment effects? We find a common pattern among countries undergoing what we term contractionary inflation reduction, or periods of declining inflation that are accompanied by a loss of formal employment. After controlling for long-term employment trends, we find that the ratio of women's to men's employment tends to decline during these periods in the majority of countries examined. During the fewer periods of expansionary inflation reduction, however, there are no clear patterns to the relative changes in women's and men's employment. In terms of monetary policy indicators, we find that countries that respond to inflation by raising real interest rates above the long-run trend are also more likely to experience employment contractions, as are those in which real money supply growth falls below its long-run trend, with concomitantly higher costs for women's employment. Maintaining competitive exchange rates seems to counterbalance the gender-biased effects of contractionary inflation reduction episodes, however. That the costs of inflation reduction, at least in terms of employment, are inequitably distributed by gender means that monetary policy is also gender specific, with the result that the costs of implementing these sorts of policies are actually quite different – and potentially higher – than is generally presumed.