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Distributional Effects of Macroeconomic Policy Choices in Emerging Market Economies

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  • Eswar S Prasad

Abstract

Distributional consequences typically receive limited attention in economic models that analyze the effects of monetary and financial sector policies. These consequences deserve more attention as financial markets are incomplete, imperfect, and economic agents’ access to them is often limited. This limits households’ ability to insure against household-specific (or sector-specific) shocks and magnifies the distributional effects of aggregate macroeconomic fluctuations and associated policy responses. These effects are likely to be even larger in emerging market and low-income economies beset by financial frictions. The political economy surrounding distributional consequences can sometimes lead to policy measures that reduce aggregate welfare. I argue that it is important to take better account of distributional rather than just aggregate consequences when evaluating specific policy interventions as well as the mix of different policies.

Suggested Citation

  • Eswar S Prasad, 2014. "Distributional Effects of Macroeconomic Policy Choices in Emerging Market Economies," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 62(3), pages 409-429, August.
    • Handle: RePEc:pal:imfecr:v:62:y:2014:i:3:p:409-429
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    Cited by:

    1. Louis Rouanet & Peter Hazlett, 2023. "The redistributive politics of monetary policy," Public Choice, Springer, vol. 194(1), pages 1-26, January.
    2. Jose Aurazo & Farid Gasmi, 2024. "Financial inclusion transitions in Peru: does labor informality play a role?," BIS Working Papers 1200, Bank for International Settlements.
    3. Goodness C. Aye & Laurence Harris, 2019. "The effect of real exchange rate volatility on income distribution in South Africa," WIDER Working Paper Series wp-2019-29, World Institute for Development Economic Research (UNU-WIDER).
    4. Aurazo, Jose & Vega, Milton, 2021. "Why people use digital payments: Evidence from micro data in Peru," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 2(4).
    5. Chakrabarti, Anindya S., 2016. "Inflationary effects of monetary policies in newly industrialized economies with cross-sectoral labor and capital immobility," Journal of Macroeconomics, Elsevier, vol. 50(C), pages 151-167.
    6. Gasmi, Farid & Aurazo, Jose, 2022. "Labor informality and financial inclusion transitions: Evidence from Peru," TSE Working Papers 22-1349, Toulouse School of Economics (TSE).
    7. Aaron Mehrotra & James Yetman, 2014. "Financial inclusion and optimal monetary policy," BIS Working Papers 476, Bank for International Settlements.
    8. Prasad, Eswar & Zhang, Boyang, 2015. "Distributional Effects of Monetary Policy in Emerging Market Economies," IZA Discussion Papers 9272, Institute of Labor Economics (IZA).
    9. Chakrabarti, Anindya S., 2015. "Inflationary effects of monetary policies in newly industrialized economies with cross-sectoral labor and capital immobility," IIMA Working Papers WP2015-08-07, Indian Institute of Management Ahmedabad, Research and Publication Department.
    10. Robert Jarrow & Sujan Lamichhane, 2020. "The Effects of Yield Control Monetary Policy: A Helicopter Money Drop to Financial Institutions," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 10(01), pages 1-38, March.
    11. Anand, Rahul & Prasad, Eswar S. & Zhang, Boyang, 2015. "What measure of inflation should a developing country central bank target?," Journal of Monetary Economics, Elsevier, vol. 74(C), pages 102-116.
    12. Tara Iyer, 2016. "Optimal Monetary Policy in an Open Emerging Market Economy," Working Paper Series WP-2016-6, Federal Reserve Bank of Chicago.
    13. Ms. Louise Fox, 2015. "Are African Households Heterogeneous Agents?: Stylized Facts on Patterns of Consumption, Employment, Income and Earnings for Macroeconomic Modelers," IMF Working Papers 2015/102, International Monetary Fund.
    14. khan, sajawal, 2018. "Business Cycle Fluctuations: why are so undesirable?," MPRA Paper 93172, University Library of Munich, Germany, revised 12 Jan 2019.

    More about this item

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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