Exploring the Connection Between Central Bank Policy and Income Inequality

The issue of income inequality in the economy is a long-standing concern of policymakers, but it has been accentuated because of recent events—the shocks propagated at a global level and the complex crises that are increasingly evident—increasing awareness of the role of macroeconomic policies in mitigating this phenomenon. In this context, there is also interest in the relationship between a central bank’s policy and the general objective of combating income inequality. By exploring such a relationship, we aim to identify ways a central bank can engage in this direction. Using a comparative analysis based on a set of specific criteria for a mixed sample that includes central banks from advanced and emerging economies, it is shown that the most common way of addressing income inequality within central banks is to support the process of financial inclusion in the sense of developing access to financial services for low-income households. The approach and results support further research in expanding quantifiable criteria, which would highlight the different ways of involving the central bank in the issue of income inequality.