This paper reviews the recent literature on monetary policy rules. To organize the discussion, we exposit the monetary policy design problem within a simple baseline theoretical framework. We then consider the implications of adding various real word complications. We concentrate on developing results that are robust across a reasonable variety of competing macroeconomic frameworks. Among other things, we show that the optimal policy implicitly incorporates inflation targeting. We also characterize the gains from making credible commitments to fight inflation and consider the implications of frictions such as imperfect information and model uncertainty. Finally, we assess how proposed simple rules, such as the Taylor rule, square with the principles for optimal policy that we describe. We use this same metric to evaluate the recent course of U.S. monetary policy.

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The Science of Monetary Policy: A New Keynesian Perspective

Among contemporary nations, the relationship between income equality and national wealth exhibits an inverted-U shape low among the richest and poorest nations, and high for nations with intermediate wealth. To examine the reasons for this relationship, I hypothesize that both political democracy and educational enrollment are related in a similar way to income inequality. Two data sets are used in this analysis: modified version of Muller's set of 62 nations circa 1965-1975 and Hoover's data set. Multiple regression reveals that measures of political democracy and the educational enrollment levels have an inverted-U relationship with income inequality. National wealth (GNP) had no consistent direct effect on income inequality. A satisfactory specification of national levels of income inequality must include the polynomial functions of political democracy and education.

Political Rights and Income Inequality: A Cross-National Test

Purpose – The purpose of this paper is to investigate the relationship between income inequality and economic growth, both in linear and non‐linear specifications.Design/methodology/approach – The paper has employed annual time series data over the period of 1971 up to 2005. Autoregressive distributed lag model (ARDL) bounds testing approach has been used for cointegration and error correction model for short run behavior. Unit root problem is handled by the use of augmented Dickey‐Fuller unit root test.Findings – The analysis findings are sharply contrasted to the significant association between income inequality and economic growth found in 1994 by Alesina and Roderick and by Persson and Tabellini. The empirical evidence provides support for the existence of Kuznets inverted‐U as well as inverted S‐shaped curve in Pakistan.Practical implications – This paper opens up new directions for policy‐making authorities to equalize income distribution in the case of a small transition economy like Pakistan.Origi...

Income inequality‐economic growth and non‐linearity: a case of Pakistan

A large volume of econometric literature has studied the impact of economic globalisation on income inequality around the world. However, reported econometric estimates vary substantially, which makes it difficult to draw valid conclusions. This paper presents a quantitative summary and analysis of existing estimates regarding the globalisation–inequality relationship. We use a new data set consisting of 1,254 observations from 123 primary studies. By applying meta‐analysis and meta‐regression methods, we obtain several main findings. First, globalisation has a (small‐to‐moderate) inequality‐increasing effect. Second, while the effect of trade globalisation is small, financial globalisation shows a more sizeable and significantly stronger inequality‐increasing impact. Third, we find an average inequality‐increasing impact of globalisation in both advanced and developing countries. Fourth, education and technology moderate the impact of globalisation on income inequality.

https://onlinelibrary.wiley.com/doi/pdf/10.1111/twec.13007

Does economic globalisation affect income inequality? A meta-analysis

A New Keynesian model estimated for India yields valuable insights. Aggregate demand reacts to interest rate changes with a lag of three quarters, while inflation takes four quarters to respond to demand conditions. Inflation thus responds to monetary policy actions with a lag of seven quarters. Inflation is inertial and persistent when it sets in, irrespective of the source. Exchange rate pass-through to domestic inflation is low. Inflation turns out to be the dominant focus of monetary policy, accompanied by a strong commitment to the stabilization of output.

A monetary policy model for India

The paper aims at the (a) measurement of the extent of income inequality across countries, (b) measurement of the change in income inequality over the last decade, (c) examination of the factors responsible for the income inequality, and (d) identification of the shape and position of the Kuznets’ curve. Twenty-seven countries data at two points of time, one in 1960s and the other in 1970s, have been used. The six alternative measures of inequality, i.e. income share of the lowest 20% population, income share of the top 20% population, Gini coefficient, Their index I (based on income weights), Theil index II (based on population weights) and Kuznets index, and the regression technique have been used for the analysis. It is found that the (a) Income in equality varies widely among countries in the world. Countries with comparatively low-income inequality, in the sample, are Korea, the Netherlands, Sweden U.K. and Yugoslavia. Brazil and Mexico have witnessed rather high degree of Income inequality. It is moderate in Argentina and nothing unambigously can be stated about other countries in the sample; (b) Inequality has increased in Panama and decreased in Cost Rica, France, Italy, Sri Lanka, Taiwan, Tanzania and U.S.A. in the last decade; (c) Kuznets’ hypothesis of the inverted U-shaped curve between the income inequality and the per capita income is valid; and (d) government expenditure, the literacy rate and the growth rate in GNP are the equalizers, while the growth rate in population and the proportion of labor force in agriculture have the disequalizing effect on the economy.

Income Inequality Across Nations Over Time: How Much and Why?

Based on a sample of 20 annual observations (1948-49 through 1967-68) a policy-oriented econometric model for the Indian economy with an emphasis on the monetary sector has been formulated estimated, and analysed. Besides national income and its components, the demand, supply, and equilibrium condition of each of the six kinds of financial assets (currency, bank reserves, government bonds, demand deposits, time deposits, and private non-bank liabilities with banks) were considered. Every effort was made to introduce as many policy variables in as many equations as permissible both on theoretical and on statistical grounds. The primary objective was to quantitatively evaluate the direct and indirect impacts of various policy variables on the model’s endogenous variables. The model should be of help in understanding the portfolio management by the different sectors of the economy.

A Monetary Policy Model for India

The purpose of the study is to (a) examine the degree of substitutability between labour and capital, (b) estimate returns to scale, (c) compute the factors’ marginal productivities and relative contribution to output and to (d) test the predictive ability of the estimated relationship. These objectives are pursued with the aid of annual time series data for the period 1946 to 1966. Both inter-regional and inter-temporal comparisons have been attempted. The multiple regression technique is applied to various forms of the production functions. It is found that the elasticity of factor substitution is unity in the Indian Sugar Industry. It has experienced increasing returns to scale. Labour as a factor of production is more important both in terms of marginal productivity and contribution to the output and it is more efficient in all-India than in Uttar Pradesh and Bihar and more in Bihar than in Uttar Pradesh. All these findings imply that there is a good scope for employment of more labour and the expansion of sugar industry in India. The paper suggests that the output of a manufacturing industry can reasonably be forecasted through the multiple regression technique.

Production Function in Indian Sugar Industry

The paper explains the autoregressive integrated moving average (ARIMA) (Box-Jenkins) model in detail, develops an ARIMA model for tea production in India using monthly data for the period Jan. 1979 through July 1991, and applies the so developed model to forecast tea production during the future 12 months. On verification through several statistical techniques including the accuracy of sample period forecasts, the model is found to be quite strong. The post sample period forecasts are consistent with the seasonal pattern of the data in past 12 years and this enhances the model’s credibility. As per the results, tea production in India during the post-sample one year is expected to be fluctuating between a low of 14,300 tonnes during Feb.-March 1992 to 90,600 tonnes in July 1992; the actual data for these periods are not yet available in published form.

Arima Model for and Forecasts on Tea Production in India

The paper estimates the export and import function for India both at the aggregate (rest of the world) as well as the important individual country levels, using annual time series data for the period 1960-61 through 1990-91. It finds that the income elasticities of trade are significant and that this elasticity is significantly higher for imports than exports, implying the possibility of the worsening trade balance with the growth in economies. The trade is generally price inelastic but this elasticity is generally higher for exports than imports. The sum (absolute) of the two price elasticities generally exceeds unity and thus satisfies the Marshall-Lerner condition for the effectiveness of devaluation in regulating the trade imbalance. The impact of the 1966 devaluation is found significant more with regard to imports than exports, and the post 1980 liberalization policy has produced desirable impact on India globalization. Based on the estimated trade elasticities and the last five years average growth rates in the trade determinants, the growth rates in India’s real exports and imports have been projected at 4.1% and 5.4% respectively, and accordingly a worsening of the trade imbalance has been foreseen in the coming years.

Gupta G S

Papers

Income Inequality Across Nations Over Time: How Much and Why?

A Monetary Policy Model for India

Production Function in Indian Sugar Industry

Arima Model for and Forecasts on Tea Production in India

Income and Price Elasticities in India Trade