Monetary Policy and the Well-Being of the Poor

Abstract

This chapter examines the influence of monetary policy on poverty and inequality both over the business cycle in the United States and over the longer run in a large sample of countries. It provides some up-to-date estimates of the cyclical behavior of poverty and inequality. And because rising inequality, for a given level of income, leads to greater poverty, the distribution of income is also a central concern. At the same time, monetary policy is one of the modern age’s most potent tools for managing the economy. Because of the short-run cyclicality of poverty, some authors have concluded that compassionate monetary policy is loose or expansionary policy. In the long run, monetary policy most directly affects average inflation and the variability of aggregate demand. Cyclical fluctuations clearly affect poverty through their impact on average income.