Inflation targeting, economic performance, and income distribution: a monetary macroeconomics analysis

Since the adoption of inflation targeting in New Zealand in 1990, a number of developed as well as developing and emerging market economies have followed suit. Often the sole goal of central bank policies, the strategy of inflation targeting is to reduce the inflation rate and, in some cases, also reduce interest rates and output volatilities. Yet, while there is some evidence that these objectives have not been reached, we intend to look at the impact of inflation targeting on the distribution of income, more specifically on the wage share. Our conclusions show that there appears to be a decline in the wage share in the countries that have adopted an inflation-targeting regime.