The effect of inflation on income inequality: Evidence from a non-linear dynamic panel data analysis in indonesia
This research investigates the impact of inflation on income inequality in Indonesia. This study is part of a comprehensive examination investigating which monetary policy can be utilized to lessen inequality. As a central bank objective, inflation can influence the distribution of income,...
| Main Authors: | , , , |
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| Format: | Article |
| Language: | English |
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Growing Science
2023-01-01
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| Series: | Decision Science Letters |
| Online Access: | http://www.growingscience.com/dsl/Vol12/dsl_2023_17.pdf |
| _version_ | 1797812615455440896 |
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| author | Betty Uspri Syafruddin Karimi Indrawari Indrawari Endrizal Ridwan |
| author_facet | Betty Uspri Syafruddin Karimi Indrawari Indrawari Endrizal Ridwan |
| author_sort | Betty Uspri |
| collection | DOAJ |
| description | This research investigates the impact of inflation on income inequality in Indonesia. This study is part of a comprehensive examination investigating which monetary policy can be utilized to lessen inequality. As a central bank objective, inflation can influence the distribution of income, wealth, and endogenous consumption, hence defining inequality. This study employed dynamic panel data analysis for linear autoregressive data using the generalized method of moments (GMM) for both first differences GMM (FD-GMM or AB-GMM) and system GMM (Sys-GMM or BB-GMM) with regional data from 58 cities in 2010-2020. The Arellano-Bond estimator reveals a positive and statistically significant association between inflation and inequality. When inflation rises, the purchasing power of the poor will decline, while the wealthiest will benefit as their non-cash assets proliferate. This study finds, indirectly, that Indonesia’s monetary policy can play a crucial role in lowering income distribution gaps. As one of the nations with an inflation-targeting framework, the Indonesian Central Bank can target the inflation rate by considering inequality. The ITF becomes the most effective monetary policy for stabilizing prices and promoting economic stability. The ITF reduces income inequality by reducing inflation rates. The study also finds that, similar to other emerging nations, economic growth in Indonesia exacerbates inequality. Poverty can be reduced by increased economic growth, but the positive impact of development on the wealthy is significantly more significant than on the poor. Therefore, economic expansion increases inequality. |
| first_indexed | 2024-03-13T07:40:04Z |
| format | Article |
| id | doaj.art-cb3707ad69874e7f8b7768243b0a9865 |
| institution | Directory Open Access Journal |
| issn | 1929-5804 1929-5812 |
| language | English |
| last_indexed | 2024-03-13T07:40:04Z |
| publishDate | 2023-01-01 |
| publisher | Growing Science |
| record_format | Article |
| series | Decision Science Letters |
| spelling | doaj.art-cb3707ad69874e7f8b7768243b0a98652023-06-03T16:46:04ZengGrowing ScienceDecision Science Letters1929-58041929-58122023-01-0112363964810.5267/j.dsl.2023.4.001The effect of inflation on income inequality: Evidence from a non-linear dynamic panel data analysis in indonesiaBetty UspriSyafruddin Karimi Indrawari IndrawariEndrizal Ridwan This research investigates the impact of inflation on income inequality in Indonesia. This study is part of a comprehensive examination investigating which monetary policy can be utilized to lessen inequality. As a central bank objective, inflation can influence the distribution of income, wealth, and endogenous consumption, hence defining inequality. This study employed dynamic panel data analysis for linear autoregressive data using the generalized method of moments (GMM) for both first differences GMM (FD-GMM or AB-GMM) and system GMM (Sys-GMM or BB-GMM) with regional data from 58 cities in 2010-2020. The Arellano-Bond estimator reveals a positive and statistically significant association between inflation and inequality. When inflation rises, the purchasing power of the poor will decline, while the wealthiest will benefit as their non-cash assets proliferate. This study finds, indirectly, that Indonesia’s monetary policy can play a crucial role in lowering income distribution gaps. As one of the nations with an inflation-targeting framework, the Indonesian Central Bank can target the inflation rate by considering inequality. The ITF becomes the most effective monetary policy for stabilizing prices and promoting economic stability. The ITF reduces income inequality by reducing inflation rates. The study also finds that, similar to other emerging nations, economic growth in Indonesia exacerbates inequality. Poverty can be reduced by increased economic growth, but the positive impact of development on the wealthy is significantly more significant than on the poor. Therefore, economic expansion increases inequality.http://www.growingscience.com/dsl/Vol12/dsl_2023_17.pdf |
| spellingShingle | Betty Uspri Syafruddin Karimi Indrawari Indrawari Endrizal Ridwan The effect of inflation on income inequality: Evidence from a non-linear dynamic panel data analysis in indonesia Decision Science Letters |
| title | The effect of inflation on income inequality: Evidence from a non-linear dynamic panel data analysis in indonesia |
| title_full | The effect of inflation on income inequality: Evidence from a non-linear dynamic panel data analysis in indonesia |
| title_fullStr | The effect of inflation on income inequality: Evidence from a non-linear dynamic panel data analysis in indonesia |
| title_full_unstemmed | The effect of inflation on income inequality: Evidence from a non-linear dynamic panel data analysis in indonesia |
| title_short | The effect of inflation on income inequality: Evidence from a non-linear dynamic panel data analysis in indonesia |
| title_sort | effect of inflation on income inequality evidence from a non linear dynamic panel data analysis in indonesia |
| url | http://www.growingscience.com/dsl/Vol12/dsl_2023_17.pdf |
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