A primer on monetary policy and income distribution: a heterodox perspective

Abstract

Monetary policy is not often associated with income and wealth inequality. Since the 2007-8 global financial crisis, however, the mainstream has slowly turned its attention to the link between changes in the rate of interest and income/wealth distribution. Of course, post-Keynesians, and heterodox economists in general, have been aware of this relationship for many decades. In this paper, we wish to explore further this relationship and focus on the direct and indirect transmission mechanisms, in particular in order to reveal the true nature of an inflation targeting monetary policy as a de facto long-term incomes policy. Finally, we wish to discuss these views briefly also in the context of open economies, as is the case of developing and emerging economies, such as Argentina.

JEL classification: E12 ; E24 ; E43