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This dissertation studies the effects of inequality on macroeconomic policies. Inequality has become a very important issue, but there are few studies about the effects of inequality on monetary and fiscal policies. This dissertation attempts to fill this gap. The dissertation consists of three chapters.

Chapter 1, “Inequality and the Interwar Gold Standard” studies the relationship between inequality and the interwar gold standard. Many economic historians have argued that adherence to the gold standard was an important obstacle to recovery from the Great Depression. It is therefore important to understand the factors that affected a country’s determination to remain on gold. Many proximate determinants of adherence have been identified, including democracy, creditor status, sterling bloc membership and the structure of a country’s trade network. Here I explore a neglected but fundamental determinant: inequality. I find that countries with higher inequality at the start of the Great Depression remained on gold longer than countries with lower inequality. I conduct a survival analysis using two discrete time hazard models to test the effect of inequality on the probability of exiting gold for each country. The paper lays out the econometric evidence for this relationship and analyzes the underlying political economy that explains the relationship between inequality and adherence to the gold standard. Four detailed case studies of the relationship are provided: Australia, New Zealand, France and the U.S., four cases that illustrate the general proposition.

Chapter 2, “The Short-Run and Long-Run Effects of Inequality on Inflation in the United States” studies effects of inequality on inflation in the in the United States. It uses a wide range of inequality measures. The cointegration test provides evidence that there exists a long-run relationship between inequality and inflation in the United States. The Vector Error Correction Model (VECM) and impulse response function indicate that inequality has a negative effect on inflation in the long run, however, the short-run effect is not significant.

Chapter 3, “The Short-Run and Long-Run Effects of Inequality on Inflation- Panel Data Analysis” expands the dataset to several panels and studies the effects of inequality on inflation. It uses several panels of international data covering different periods and monetary regimes. The Autoregressive Distributed Lag (ARDL) model shows a negative long-run relationship between inequality and inflation, and the Arellano-Bond GMM estimator reveals a negative causal effect running from inequality to inflation in the short run. The paper lays out the econometric evidence for these relationships and analyzes the underlying political economy that explains the relationships between inequality and inflation.

ETD_10612

Ph.D.

Includes bibliographical references

doi:10.7282/t3-4ckk-1a56

ETD doctoral

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