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Inflation, Inequality, and Social Conflict
Author:
Mr. Christopher W. Crowe
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Series:
IMF Working Papers
Volume/Issue:
Volume 2006: Issue 158
Language:
English
Publication Date:
01 Jun 2006
DOI:
https://doi.org/10.5089/9781451864182.001
ISBN:
9781451864182
ISSN:
1018-5941
Pages:
37
Keywords:
WP; mover accent
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This paper presents and then tests a political economy model to analyze the observed positive relationship between income inequality and inflation. The model's key features are unequal access to both inflation-hedging opportunities and the political process. The model predicts that inequality and 'elite bias' in the political system interact to create incentives for inflation. The paper's empirical section focuses on this predicted interaction effect. The identification strategy involves using the end of the Cold War as a source of exogenous variation in the political environment. It finds robust evidence in support of the model.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund