Monetary policy and SDG outcomes: Income-level heterogeneity

Type of the article: Research ArticleAbstractWith five years remaining to the 2030 deadline of the United Nations Sustainable Development Goals, the relationship between monetary policy and SDG progress remains largely unexplored. This paper aims to quantify the association between short-term policy rates and SDG 1, SDG 8, and SDG 10 achievement across high-income, upper-middle-income, and low- and lower-middle-income economies. The analysis draws on a panel of 129 economies over 2000–2023, combining SDSN SDR2025 goal scores, IMF interest-rate series, World Bank WDI controls, and WGI 2.0 indicators (2,563 country-year observations), estimated using two-way fixed-effects regressions with country-clustered standard errors and eight robustness blocks. First, higher policy rates show a modest and consistent positive association with SDG 8 across income groups (β ≈ +0.045, all p < 0.10), robust to two-period lags and a dynamic LSDV re-specification. Second, the pooled association with SDG 1 is null, but interaction estimates reveal significant income-group heterogeneity: within-HIC β = +0.412 (p = 0.006) and a significantly weaker UMC association (interaction β = −0.590, p = 0.002), with a negative but insignificant net UMC estimate (−0.178, p = 0.20). Third, the aggregate SDG Index is negatively associated with the policy rate only in the UMC sub-sample (β = −0.048, p = 0.027), and the SDG 8 association disappears when real or lending rates replace the policy rate – consistent with a signaling interpretation rather than an identified mechanism. Assessments of monetary policy in the SDG context should distinguish between goals with consistent associations and goals whose association varies significantly with income group.