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Monetary Policy and the Well-Being of the Poor

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  • Christina D. Romer
  • David H. Romer

Abstract

This paper investigates monetary policy's influence on poverty and inequality in both the short run and the long run. We find that the short-run and long-run relationships go in opposite directions. The time-series evidence from the United States shows that a cyclical boom created by expansionary monetary policy is associated with improved conditions for the poor in the short run. The cross-section evidence from a large sample of countries, however, shows that low inflation and stable aggregate demand growth are associated with improved well-being of the poor in the long run. Both the short-run and long-run relationships are quantitatively large, statistically significant, and robust. But because the cyclical effects of monetary policy are inherently temporary, we conclude that monetary policy that aims at low inflation and stable aggregate demand is the most likely to permanently improve conditions for the poor.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6793.

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Date of creation: Nov 1998
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Publication status: published as Proceedings of a Federal Reserve Bank of Kansas City symposium: "Income Inequality Issues and Policy Options," Jackson Hole, Wyoming, August 27-29, 1998, pp. 159-201
Handle: RePEc:nbr:nberwo:6793

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