Should Inequality Factor into Central Banks' Decisions?
IMF Working Papers, September 25, 2020
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- Should Inequality Factor into Central Banks' Decisions?
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Bibliographic details
- Authors: Niels-Jakob H Hansen, Alessandro Lin, Rui Mano
- Published: September 25, 2020
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513557649.001
Authors and publication
- By Niels-Jakob H Hansen, Alessandro Lin, Rui Mano
- September 25, 2020
Summary
- Inequality is increasingly a concern. Fiscal and structural policies are well-understood mitigators. However, less is known about the potential role of monetary policy.
- This paper investigates how inequality matters for monetary policy within a tractable Two-Agent New Keynesian model that captures important dimensions of inequality.
- The authors find some support for making inequality an explicit target for monetary policy, particularly if central banks follow standard Taylor rules.
Methodology
- Model: Two-Agent New Keynesian model designed to capture important dimensions of inequality.
Key findings
- There is some support for incorporating inequality as an explicit target in monetary policy frameworks.
- The case for targeting inequality is particularly relevant when central banks operate under standard Taylor rules.
Policy implications and recommendations
- Consideration of inequality in monetary policy design can be justified, especially in settings where central banks follow standard Taylor rules.
- Monetary policy could play a complementary role to fiscal and structural policies in addressing inequality.
Subjects and keywords
- Subject: Consumption, Income, Income inequality, Inflation, Output gap
- Keywords: consumption inequality, inequality gap, inflation gap, labor income, optimal monetary policy, WP
Content in this bundle
- Working Paper