Inequality, Inflation, and Central Bank Independence

Posted: 3 Apr 2001

See all articles by Jim Dolmas

Jim Dolmas

Federal Reserve Banks - Federal Reserve Bank of Dallas

Gregory W. Huffman

Vanderbilt University - College of Arts and Science - Department of Economics

Mark A. Wynne

Federal Reserve Bank of Dallas

Abstract

What can account for the different contemporaneous inflation experiences of various countries, and of the same country over time? We present an analysis of the determination of inflation from a political economy perspective. We document a positive correlation between income inequality and inflation and then present a theory of the determination of inflation outcomes in democratic societies that illustrates how greater inequality leads to greater inflation, owing to a desire by voters for wealth redistribution. We conclude by showing that democracies with more independent central banks tend to have better inflation outcomes for a given degree of inequality.

JEL Classification: E5, H0

Suggested Citation

Dolmas, Jim and Huffman, Gregory W. and Wynne, Mark A., Inequality, Inflation, and Central Bank Independence. Available at SSRN: https://ssrn.com/abstract=238671

Jim Dolmas

Federal Reserve Banks - Federal Reserve Bank of Dallas ( email )

Gregory W. Huffman (Contact Author)

Vanderbilt University - College of Arts and Science - Department of Economics ( email )

Box 1819 Station B
Nashville, TN 37235
United States

Mark A. Wynne

Federal Reserve Bank of Dallas ( email )

PO Box 655906
Dallas, TX 75265-5906
United States
214-922-5159 (Phone)
214-922-5194 (Fax)

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