MONETARY POLICY, FINANCIAL DEVELOPMENT AND INCOME INEQUALITY IN DEVELOPING COUNTRIES

Mansor Ibrahim

The Singapore Economic Review (SER), 2024, vol. 69, issue 02, 859-889

Abstract: The paper empirically examines the redistributive effect of monetary policy and assesses whether financial development plays any role in shaping monetary policy — inequality relations in developing countries. We uncover evidence supporting the redistributive consequences of monetary policy especially in more financially developed countries. We further note that while financial development raises income inequality in countries with low financial development, it leads to a reduction in income inequality in high financial development countries. As a side result, economic growth contributes favorably to income equalization in these countries. Finally, such financial indicators as financial access, financial efficiency and financial stability also condition the impacts of monetary policy on income distribution, although they are independently insignificant. Our results hint that the improvements in information and in efficiency rather than depth and access that would attenuate the negative impacts of contractionary monetary policy on income distribution.

Keywords: Monetary policy; income inequality; developing countries; panel VAR (search for similar items in EconPapers)
JEL-codes: E44 E52 O15 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1142/S0217590821410010

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