Distributional Effects of Monetary Policy in Emerging Market Economies
Distributional Effects of Monetary Policy in Emerging Market Economies

Author: Eswar Prasad

Publisher:

Published: 2015

Total Pages: 46

ISBN-13:

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We develop a two-sector, heterogeneous-agent model with incomplete financial markets to study the distributional effects and aggregate welfare implications of alternative monetary policy rules in emerging market economies. Relative to inflation targeting, exchange rate management benefits households in the tradable goods sector but in the long run these households are worse off due to higher consumption volatility. A fixed exchange rate reduces the welfare of these households and aggregate welfare when the economy is hit by positive shocks to nontradable goods productivity or foreign interest rates. Fiscal policy can more efficiently achieve similar short-run distributional objectives as exchange rate management.

The Macroeconomic (and Distributional) Effects of Public Investment in Developing Economies
The Macroeconomic (and Distributional) Effects of Public Investment in Developing Economies

Author: Davide Furceri

Publisher: International Monetary Fund

Published: 2017-10-20

Total Pages: 39

ISBN-13: 1484325230

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This paper provides new empirical evidence of the macroeconomic effects of public investment in developing economies. Using public investment forecast errors to identify unanticipated changes in public investment, the paper finds that increased public investment raises output in the short and medium term, with an average short-term fiscal multiplier of about 0.2. We find some evidence that the effects are larger: (i) during periods of slack; (ii) in economies operating with fixed exchange rate regimes; (iii) in more closed economies; (iv) in countries with lower public debt; and (v) in countries with higher investment efficiency. Finally, we show that increases in public investment tend to lower income inequality.

Distributional Effects of Macroeconomic Policy Choices in Emerging Market Economies
Distributional Effects of Macroeconomic Policy Choices in Emerging Market Economies

Author: Eswar S. Prasad

Publisher:

Published: 2013

Total Pages:

ISBN-13:

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Distributional consequences typically receive limited attention in economic models that analyze the effects of monetary and financial sector policies. These consequences deserve more attention since 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.

Monetary Policy Transmission in an Emerging Market Setting
Monetary Policy Transmission in an Emerging Market Setting

Author: Ila Patnaik

Publisher: International Monetary Fund

Published: 2011-01-01

Total Pages: 27

ISBN-13: 1455211834

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Some emerging economies have a relatively ineffective monetary policy transmission owing to weaknesses in the domestic financial system and the presence of a large and segmented informal sector. At the same time, small open economies can have a substantial monetary policy transmission through the exchange rate channel. In order to understand this setting, we explore a unified treatment of monetary policy transmission and exchangerate pass-through. The results for an emerging market, India, suggest that the most effective mechanism through which monetary policy impacts inflation runs through the exchange rate.

Monetary Policy in Emerging Markets
Monetary Policy in Emerging Markets

Author: Mr.Donal McGettigan

Publisher: International Monetary Fund

Published: 2013-05-03

Total Pages: 30

ISBN-13: 1484388267

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In contrast to advanced markets (AMs), procyclical monetary policy has been a problem for emerging markets (EMs), with macroeconomic policies amplifying economic upswings and deepening downturns. The stark difference in policy has not been subject to extensive study and this paper attempts to address the gap. Key findings, using a large sample of EMs over the past 50 years, are: (i) EMs have adopted increasingly countercyclical monetary policy over time, although large differences remain among EMs and policies became more procyclical during the recent crisis. (ii) Inflation targeting and better institutions have been key factors behind the move to countercyclicality. (iii) Only deep financial markets allow EMs with flexible exchange rate regimes turn countercyclical. (iv) More countercyclical policy is associated with far less volatile output. The economically meaningful impact of IT on monetary policy countercyclicality and output variability is another reason in its favor, over and above better inflation outcomes.

The Effects of Monetary Policy Shocks on Inequality
The Effects of Monetary Policy Shocks on Inequality

Author: Davide Furceri

Publisher: International Monetary Fund

Published: 2017-01-18

Total Pages: 43

ISBN-13: 1475568355

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This paper provides new evidence of the effect of monetary policy shocks on income inequality. Using a measure of unanticipated changes in policy rates for a panel of 32 advanced and emerging market countries over the period 1990-2013, the paper finds that contractionary (expansionary) monetary actions increase (reduce) income inequality. The effect, however, varies over time, depending on the type of the shocks (tightening versus expansionary monetary policy) and the state of the business cycle, and across countries depending on the share of labor income and redistribution policies. In particular, we find that the effect is larger for positive monetary policy shocks, especially during expansions. Looking across countries, we find that the effect is larger in countries with higher labor share of income and smaller redistribution policies. Finally, while an unexpected increase in policy rates increases inequality, changes in policy rates driven by an increase in growth are associated with lower inequality.

The Distributional Effects of Government Spending Shocks in Developing Economies
The Distributional Effects of Government Spending Shocks in Developing Economies

Author: Davide Furceri

Publisher: International Monetary Fund

Published: 2018-03-14

Total Pages: 39

ISBN-13: 148434541X

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We construct unanticipated government spending shocks for 103 developing countries from 1990 to 2015 and study their effects on income distribution. We find that unanticipated fiscal consolidations lead to a long-lasting increase in income inequality, while fiscal expansions lower inequality. The results are robust to several measures of income distribution and size of the fiscal shocks, to an alternative identification strategy, across expansions and recessions and across country groups (low-income countries versus emerging markets). An additional contribution of the paper is the computation of the medium-term inequality multiplier. This is on average about 1 in our sample, meaning that a cumulative decrease in government spending of 1 percent of GDP over 5 years is associated with a cumulative increase in the Gini coefficient over the same period of about 1 percentage point. The multiplier is larger for total government expenditure than for public investment and consumption (with the former having larger effect), likely due to the redistributive role of transfers. Finally, we find that (unanticipated) fiscal consolidations lead to an increase in poverty.

Income and Influence
Income and Influence

Author: Ethan B. Kapstein

Publisher: W.E. Upjohn Institute

Published: 2003

Total Pages: 114

ISBN-13: 0880992700

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This book seeks to contribute to the ongoing debate over the role of social policy in emerging markets and postcommunist transition economies, with a focus on Latin America, East Asia, and the former Soviet bloc. The authors argue that poverty reduction has not been the major objective of social policy in these countries, or even of the international financial institutions that are important providers of loans and advice to them. Instead, the main purpose of these programs has been to help smooth the consumption patterns of those formal soctor workers who feared that economic liberalization would reduce their incomes and job prospects.

Distributional Consequences of Monetary Policy in Emerging Market Economies and the Role of Food Prices
Distributional Consequences of Monetary Policy in Emerging Market Economies and the Role of Food Prices

Author: Kuhelika De

Publisher:

Published: 2017

Total Pages: 308

ISBN-13:

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My dissertation is devoted to studying the distributional consequences of monetary policy on household food consumption in emerging market economies, and the channel through which these distributional eƠ̐0ects occur. The main contribution of my dissertation is Ơ̐1nding evidence of the presence a "food price channel" of monetary policy in emerging market economies (EME's). Three essays examine the impact of the "food price channel" of monetary policy on the distribution of food consumption in EME's. Chapters 2 and 3 of the dissertation, titled "The Food Price Channel: EƠ̐0ects of Monetary Policy on the Poor in India" and "Monetary Policy and Distribution of Food Consumption in China: The Role of Food Prices" estimate the dynamic eƠ̐0ects of monetary policy shocks on relative food prices and the distribution of food consumption in two of the fastest growing emerging market economies-India and China respectively, by relying on household survey data and time series methods. Results for India and China show that the relative price of food responds positively, and the distribution of food consumption responds negatively to expansionary monetary policy shocks, providing evidence in favor of the impact of a "food price channel" of monetary policy on the distribution of food consumption in both economies. However, in India while expansionary monetary shocks via the "food price channel" appear to increase inequality, in China expansionary monetary shocks via the same channel are found to reduce inequality. Chapter 4 titled "The Food Price Channel in India Revisited" reinvestigates the impact of the "food price channel" of monetary policy on the distribution of food consumption in India, using a two sector dynamic stochastic general equilibrium (DSGE) model with Ơ̐2exible food and sticky non-food prices, and heterogeneous agents who diƠ̐0er in their proximity to subsistence food threshold. Results from the DSGE analysis point to expansionary monetary shocks having heterogeneous negative eƠ̐0ects on food consumption which reduce food consumption at the lower end of the distribution much less than that at the upper end, thus reporting a decline in inequality from the "food price channel."

Monetary Policy in Emerging Market Economies
Monetary Policy in Emerging Market Economies

Author: Boyang Zhang

Publisher:

Published: 2017

Total Pages: 344

ISBN-13:

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This dissertation studies monetary policy in emerging market economies and addresses three important questions from both a normative and positive perspective. Chapter 1 studies how central banks should react when capital flows are volatile. The analytical framework is a Markov-switching dynamic stochastic general equilibrium model that features time-varying external volatility. Computational results suggest that central banks can improve welfare and maintain macroeconomic stability if they allow the response coefficients in the interest rate rule to vary according to the external volatility regime. The optimal simple rule suggests that central banks should target inflation when external volatility is low and stabilize exchange rates when it is high, which is akin to the “leaning against the wind” approach adopted by some emerging market central banks. Chapter 2 studies the optimal inflation target for an emerging market central bank. Existing research on advanced economies shows that targeting core inflation enables monetary policy to maximize welfare. This result is examined in the context of emerging market economies, where a large proportion of households are credit constrained and the share of food expenditures in total consumption expenditures is high. Results obtained using an open economy model with incomplete financial markets indicate that headline inflation targeting improves welfare outcomes. The optimal price index includes a positive weight on food prices but assigns zero weight to import prices. Chapter 3 studies the inter-sectoral distributional effects of monetary policy in emerging market economies. Emerging market economies with fast-growing tradable sectors often face appreciation pressure, and they tend to use monetary policy to postpone currency appreciation and maintain export competitiveness. A two-sector, heterogeneous-agent model with incomplete financial markets is developed to study the inter-sectoral distributional effects of such policy choices. Relative to inflation targeting, exchange rate management can temporarily benefit households in the tradable sector in high-growth periods, but these households are worse off under the welfare criterion due to higher future consumption volatility. Capital controls and fixed exchange rate regimes amplify those distributional effects.