Does inflation targeting increase income inequality?

Abstract

Abstract We contribute to the growing empirical literature on the impact of monetary policy on income distribution by focusing on the impact of adopting an inflation targeting (IT) regime to guide monetary policy. We assess the impact employing a panel of 121 advanced and developing economies, including 27 IT adopters, during the period 1971–2015. Our results suggest that IT adoption has contributed to greater inequality of household income as measured by the Gini coefficient and to a reduced share of GDP going to labor compensation. The results are robust to alternative estimation methodologies and to variations in the sample with respect to countries and data frequency.