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The Effect of Monetary Policy on Income Inequality: Empirical Evidence from Asian and African Developing Economies

Author

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  • Zulfiqar Khan

    (Department of Economics, Faculty of Business and Economics, Abdul Wali Khan University Mardan, KP-Pakistan)

  • Muhammad Azam Khan

    (Department of Economics, Faculty of Business & Economics, Abdul Wali Khan University Mardan, Khyber Pakhtunkhwa, Pakistan)

Abstract

Inequality is a challenging issue for all developing countries across the globe. Evaluating the role of monetary policy in mitigating inequality is imperative for researchers and policy makers. The central objective of the present study is to empirically evaluate the impact of monetary policy on income inequality for ten Asian and African developing economies from 1990–2020. The methods of pooled mean group (PMG)/panel autoregressive distributed lag (ARDL), and fully modified least square (FMOLS) are implemented. The empirical results indicate that money supply has negative, and inflation has a positive and significant influence on income inequality. It has also been found that GDP per capita income and inward foreign direct investment (FDI) have a negative impact on inequality. The findings of the present study recommend that money supply, per capita income, and inward FDI should be enhanced, while inflation must be controlled using coordinated fiscal and monetary policies.

Suggested Citation

  • Zulfiqar Khan & Muhammad Azam Khan, 2023. "The Effect of Monetary Policy on Income Inequality: Empirical Evidence from Asian and African Developing Economies," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 12(3), pages 133-158.
    • Handle: RePEc:cbk:journl:v:12:y:2023:i:3:p:133-158
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    More about this item

    Keywords

    Monetary policy; income inequality; panel ARDL; Asian and African countries;
    All these keywords.

    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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