Webster Vienna Professor Dr. Punzi: Low Inflation Rates Generate Higher Income Inequality

On October 31 and November 01, 2019, the SEACEN Center organized a two-day research seminar, pooling together delegates from 8 Central Banks in Asia: Cambodia, India, Mongolia, Philippines, Sri Lanka, Taiwan, Thailand, and Vietnam.

Dr. Maria Teresa Punzi, Assistant Professor of Economics at WVPU, has been leading the project “The distributional Impact of Monetary Policy in SEACEN Economies.” Dr. Punzi, together with Dr. Ole Rummel, have chaired the two-day seminar, and Dr. Punzi opened the event by presenting an overview of the project as well as some preliminary findings.

The research seminar has shown the clear impact of monetary policy on income distribution. The impact is more pronounced when Central Banks lower policy rates than tightening monetary policy. The inflation regime is important in the transmission mechanism of monetary policy shocks. Indeed, very low inflation rates generate higher income inequality, while higher inflation rates tend to contribute to lower income inequality. Moreover, housing prices also tend to increase income inequality. Many SEACEN economies have been experiencing ultra-low inflation and policy rates, thus income inequality has been higher than usual. Inflation being under the control of Central Banks is questionable, and Central Banks should consider alternative policy in order to bring inflation back to target, and eventually avoid a large increase in income inequality.

While many countries have worked in their research paper with macroeconomic variables, such as the Gini Index and GDP growth, Mongolia, the Philippines and Thailand have presented preliminary results using a survey conducted by the National Statistical Office of the corresponding country.

The next step is to pool each individual research project in a book, which is expected to be published in the spring of 2020.