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Inflation targeting regime and income distribution in emerging market economies

In: The Future of Central Banking

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  • Lilian Rolim
  • Nathalie Marins

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.

Suggested Citation

  • Lilian Rolim & Nathalie Marins, 2022. "Inflation targeting regime and income distribution in emerging market economies," Chapters, in: Sylvio Kappes & Louis-Philippe Rochon & Guillaume Vallet (ed.), The Future of Central Banking, chapter 3, pages 62-83, Edward Elgar Publishing.
    • Handle: RePEc:elg:eechap:19461_3
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    Cited by:

    1. Rolim, Lilian & Marins, Nathalie, 2023. "Foreign price shocks and inflation targeting: Effects on income and inflation inequality," IPE Working Papers 207/2023, Berlin School of Economics and Law, Institute for International Political Economy (IPE).

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    Keywords

    Economics and Finance;

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