Inequality, inflation, and central bank independence
What can account for the different contemporaneous inflation experiences of various countries, and of the same country over time? We present an analysis of the determination of inflation from a political economy perspective. We document a positive correlation between income inequality and inflation and then present a theory of the determination of inflation outcomes in democratic societies that illustrates how greater inequality leads to greater inflation, owing to a desire by voters for wealth redistribution. We conclude by showing that democracies with more independent central banks tend to have better inflation outcomes for a given degree of inequality.
|Date of creation:||1997|
|Date of revision:|
|Note:||Published as: Dolmas, Jim, Gregory W. Huffman and Mark A. Wynne (2000), "Inequality, Inflation, and Central Bank Independence," Canadian Journal of Economics 33 (1): 271-287.|
|Contact details of provider:|| Web page: http://www.dallasfed.org/|
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- Gregory W. Huffman, 1997.
"An Equilibrium Analysis of Central Bank Independence and Inflation,"
Canadian Journal of Economics,
Canadian Economics Association, vol. 30(4), pages 943-58, November.
- Huffman, Gregory W., 1995. "An equilibrium analysis of central bank independence and inflation," Working Papers 9501, Federal Reserve Bank of Dallas.
- Beetsma, Roel & van der Ploeg, Frederick, 1992.
"Does Inequality Cause Inflation? The Political Economy of Inflation, Taxation and Government Debt,"
CEPR Discussion Papers
741, C.E.P.R. Discussion Papers.
- Beetsma, Roel M W J & van der Ploeg, Frederick, 1996. "Does Inequality Cause Inflation?: The Political Economy of Inflation, Taxation and Government Debt," Public Choice, Springer, vol. 87(1-2), pages 143-62, April.
- Beetsma, R.M.W.J. & van der Ploeg, F., 1992. "Does inequality cause inflation? : The political economy of inflation, taxation and government debt," Discussion Paper 1992-30, Tilburg University, Center for Economic Research.
- Beetsma, R.M.W.J. & Van Der Ploeg, F., 1992. "Does Inequality Cause Inflation? The Political Economy of Inflation, Taxation and Government Debt," Papers 9230, Tilburg - Center for Economic Research.
- Hongyi Li & Lyn Squire & Tao Zhang & Heng-fu Zou, 1999.
"A Data Set on Income Distribution,"
CEMA Working Papers
575, China Economics and Management Academy, Central University of Finance and Economics.
- Alesina, Alberto & Summers, Lawrence H, 1993. "Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 151-62, May.
- Cukierman, Alex & Kalaitzidakis, Pantelis & Summers, Lawrence H. & Webb, Steven B., 1993. "Central bank independence, growth, investment, and real rates," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 95-140, December.
- Klaus Deininger & Lyn Squire, 1996.
"A New Data Set Measuring Income Inequality,"
CEMA Working Papers
512, China Economics and Management Academy, Central University of Finance and Economics.
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