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This paper examines the effects of inflation and associated financial instability on income distribution. Using both pooled cross country and single country time series models, the level of inflation, inflation variability, and the variability of the nominal exchange rate are shown to impact negatively on overall income equality. Looking at disaggregate measures of income distribution, the issue as to whether inflation is a progressive or regressive tax is found to be negatively correlated with the level of development and the sophistication of the financial structure. The paper argues that these results point towards financial variables as a partial way of rectifying the generally poor explanatory power of both cross-country and time series models of income distribution.

Foreign Exchange --- Inflation --- Macroeconomics --- Aggregate Factor Income Distribution --- Price Level --- Deflation --- Personal Income, Wealth, and Their Distributions --- Currency --- Foreign exchange --- Income distribution --- Personal income --- Consumer price indexes --- Purchasing power parity --- National accounts --- Prices --- Income --- Price indexes --- United States

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Using data for the major currencies from 1973 to 1994, we apply recent tests of asset price volatility to re-examine whether exchange rates have been excessively volatile with respect to the predictions of the monetary model of the exchange rate and of standard extensions that allow for sticky prices, sluggish money adjustment, and time-varying risk premia. Consistent with previous evidence from regression-based tests, most of the models that we examine are rejected by our volatility-based tests. In general, however, we find that exchange rates have not been excessively volatile relative to movements of their determinants, with respect to the predictions of even the most restrictive version of the monetary model. Alternative measures of “volatility”, however, may disguise the cause of rejection as excessive exchange rate volatility. This a Working Paper and the author(s) would welcome any comments on the present text. Citations should refer to a Working Paper of the International Monetary Fund, mentioning the author(s), and the date of issuance. The views expressed are those of the author(s) and do not necessarily represent those of the Fund.

Foreign Exchange --- Macroeconomics --- Public Finance --- Demand for Money --- Money Supply --- Credit --- Money Multipliers --- Taxation, Subsidies, and Revenue: General --- Aggregate Factor Income Distribution --- Currency --- Foreign exchange --- Public finance & taxation --- Exchange rates --- Exchange rate modelling --- Market exchange rates --- Small taxpayer office --- Income inequality --- Revenue administration --- National accounts --- Tax administration and procedure --- Income distribution --- United States

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The impact of changes in real interest rates on saving and growth is a central issue in development economics. According to one familiar view, a financial liberalization program which increases real interest rates should encourage saving, thereby boosting investment and growth. While such liberalizations have indeed typically succeeded in raising real interest rates, their impact on private saving has been mixed. This paper uses macroeconomic data for a sample of countries with diverse income levels to estimate a model in which the intertemporal elasticity of substitution varies with the level of wealth. The estimated parameters are then used to calculate, in the context of a simple endogenous growth model, the responsiveness of saving to real interest rate changes for countries at differing stages of development.

Banks and Banking --- Macroeconomics --- Macroeconomics: Consumption --- Saving --- Wealth --- Open Economy Macroeconomics --- Economic Growth of Open Economies --- Interest Rates: Determination, Term Structure, and Effects --- Aggregate Factor Income Distribution --- Finance --- Real interest rates --- Consumption --- Income --- Domestic savings --- Private savings --- Financial services --- National accounts --- Interest rates --- Economics --- Saving and investment --- United States

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It is commonly agreed that economic policies, including budgetary policies, can have potentially strong distributional effects. Traditional economic analysis held that economic policies affected the income distribution primarily through their impact on the rate of growth. More recently, it has come to be recognized that qualitative aspects of economic growth are probably more important than the rate of growth itself. While recent research has confirmed the potential role of expenditure policies as a redistributive tool, it has also shown that redistribution does not necessarily have to come at the expense of economic growth and efficiency. Although there are substantial analytical and technical problems to be faced in the design of equitable and cost-effective public expenditure programs, unfavorable distributional outcomes of these programs can usually be traced more to political and institutional pressures than to purely technical factors.

Macroeconomics --- Public Finance --- Poverty and Homelessness --- Aggregate Factor Income Distribution --- National Government Expenditures and Related Policies: General --- Personal Income, Wealth, and Their Distributions --- Macroeconomics: Consumption --- Saving --- Wealth --- Welfare, Well-Being, and Poverty: General --- Public finance & taxation --- Poverty & precarity --- Expenditure --- Personal income --- Income distribution --- Income inequality --- Consumption --- National accounts --- Poverty --- Expenditures, Public --- Income --- Economics --- Colombia

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Poverty alleviation is typically addressed in financial programming through additive programs that target vulnerable groups but without modifying the underlying stabilization and adjustment targets. Instead, this paper integrates the poverty alleviation objective into the financial programming framework using a well-known poverty index. In consequence, the assessment of trade-offs between competing objectives is facilitated. A simulation demonstrates how the integrated approach can reduce adverse effects on poverty and improve the balance of payments, although at the cost, temporarily, of a higher fiscal deficit and inflation.

Macroeconomics --- Social Services and Welfare --- Poverty and Homelessness --- Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General --- Welfare, Well-Being, and Poverty: General --- Personal Income, Wealth, and Their Distributions --- Aggregate Factor Income Distribution --- Government Policy --- Provision and Effects of Welfare Program --- Measurement and Analysis of Poverty --- Poverty & precarity --- Social welfare & social services --- Poverty --- Personal income --- Income distribution --- Poverty reduction --- Poverty measurement --- Income