Inflation targeting regime and income distribution in emerging market economies

Lilian Rolim and Nathalie Marins

Chapter 3 in The Future of Central Banking, 2022, pp 62-83 from Edward Elgar Publishing

Abstract: This chapter explores the channels through which the inflation targeting regime can affect the functional income distribution in emerging market economies and aims to contribute to the rethinking of monetary policy therein. The analysis builds upon the post-Keynesian inflation and exchange rate determination theories and considers emerging market economies' specific aspects (susceptibility to external shocks and importance of the exchange rate channel of monetary policy). It shows that monetary policy has partial (and possibly contradictory) effects on the wage share. Therefore, the distributive effects of the inflation targeting regime depend on country-specific characteristics that interact with each other, such as the transmission mechanisms' strength, the inflationary sources and the adopted institutional framework. A key lesson is that any effort to rethink monetary policy and tackle its distributive effects in these economies must consider the exchange rate channel and frame the exchange rate policy in a coherent way - possibly by relying on complementary instruments.

Keywords: Economics and Finance (search for similar items in EconPapers)
Date: 2022
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