Economics at your fingertips  

Distributional Consequences of Monetary Policy in Emerging Economies: Dollarization, Domestic Inflation, and Income Divergence

Zhandos Ybrayev ()
Additional contact information
Zhandos Ybrayev: Nazarbayev University

Comparative Economic Studies, 2022, vol. 64, issue 2, No 2, 186-210

Abstract: Abstract This paper explores the distributional effects of monetary policy in the context of a small open economy. Emerging markets are structurally different from developed economies. They are generally associated with greater financial frictions, underdeveloped financial markets, as well as both a high average level of dollarized assets and unequal access to them, among others. Thus, distributional effects of monetary policy in emerging economies require additional specifications. In particular, I show that wealthy households (represented by the top 10% of the income distribution), who are more able to save in foreign currencies, gain in purchasing power of their incomes by hedging against domestic inflation. At the same time, the poor households (represented by the bottom fifty percent of the income distribution) retain a larger share of liquid assets denominated in domestic currency, thus experiencing a greater burden of local currency inflation. I also show that contractionary monetary policy is associated with periods of higher income inequality in emerging markets that is likely to exacerbate the damaging impact of inflation on the bottom groups of the income distribution.

Keywords: Monetary policy; Inequality; Income distribution; Emerging economies (search for similar items in EconPapers)
JEL-codes: D31 E52 E63 F33 O11 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/41294/PS2

DOI: 10.1057/s41294-021-00163-2

Access Statistics for this article

Comparative Economic Studies is currently edited by Nauro Campos

More articles in Comparative Economic Studies from Palgrave Macmillan, Association for Comparative Economic Studies Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().

Page updated 2022-07-30
Handle: RePEc:pal:compes:v:64:y:2022:i:2:d:10.1057_s41294-021-00163-2