The Inflation-Distribution Nexus: A Theoretical and Empirical Approach

Rafael Ribeiro (), Stefan D’Amato and Wallace M. Pereira

Review of Political Economy, 2022, vol. 34, issue 1, 146-164

Abstract: There are two unconnected strands of the inflation-distribution literature, one that studies the impact of inflation on income distribution and the other the impact of distribution on inflation. This paper is an attempt to fill a gap in this literature, by taking into account the simultaneous determination between inflation and income distribution. We set forth a Post-Keynesian model in which inflation and income distribution are jointly determined in a dynamical system of difference equations. Then, we conducted an empirical investigation of the relationship between inflation and distribution using a Panel Vector Autoregressive (PVAR) model since this econometric technique is robust to reverse causality. Our findings corroborate our theoretical model by showing that increases in the wage share tend to exert a downward pressure in future inflation.

Date: 2022
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Working Paper: The inflation-distribution nexus: a theoretical and empirical approach (2019)
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DOI: 10.1080/09538259.2021.1882195

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