Inflation shocks and income inequality

Abstract

Purpose The purpose of this paper is to analyze the effects of inflationary shocks on inequality, using data of selected countries of the Middle East and North Africa (MENA). Design/methodology/approach Inflationary shocks were measured as deviations from core inflation, based on a genetic algorithm. Bayesian quantile regression was used to estimate the impact of inflationary shocks in different levels of inequality. Findings The results showed that inflationary shocks substantially affect countries with higher levels of inequality, thus suggesting that the detrimental impact of inflation is exacerbated by the high division of classes in a country. Originality/value The study contributes to the literature about the relationship between inflation and inequality by proposing that not only the sustained increase in prices but also the inflationary shocks – the deviations from core inflation – contribute to the generation of inequality. Also, to the best of the authors knowledge, the relationship between inflation shocks and inequality in the MENA region has never been analyzed before, thus creating a research gap to provide additional empirical evidence about the sources of inequality. Additionally, the authors contribute with a methodological approach to measure inflationary shocks, based on a semelparous genetic algorithm.

Joint Determinants of Monetary, Macroeconomic, Social and Income Inequality

“…Also Yolanda (2017) found that the effect of inflation on poverty was significant and positive. Gonzales and Rojas-Hosse (2019) show that inflation shocks substantially affect countries that experience higher levels of income inequality, thereby suggesting that the adverse effects of inflation are exacerbated by high levels Avalaible online at http://journals.ums.ac.id, Permalink/DOI: 10.23917/jep.v21i2. 11254 Jones production function, namely the increase in population caused by the production function for consumer goods and the production function for children.…”