Patrick Conway considers the impact of three related groups of reforms on poverty and income distribution: exchange-rate adjustments, money supply adjustments, and adjustments to controls on foreign capital flows. These are combined under the heading "monetary policy" because of the conceptual linkages among them. The note first highlights the ties among these policies and then outlines the techniques available to assess the impact on the poor of reforms in these areas.
Four steps are typically followed. First, a complete description of the reform and its macroeconomic consequences is necessary. Since a reform affecting one macroeconomic aggregate typically affect other dimensions, the analysis should consider the joint effects of the direct monetary policy reform and all collateral macroeconomic changes. The second stage consists in the identification of the relevant channels by way of which monetary changes have distributional effects - both direct and indirect, and both short and long-run. The third stage is the measurement of the impact of the policy reform on wages, relative prices, incomes, and employment. The final stage involves tracking the effect of the reform on the welfare of households. The note describes the various approaches available, underlying their specific data requirements, and providing numerous practical examples.
Before closing, the note proposes two detailed sections on the efforts of researchers to derive the impact of exchange-rate reform on poverty and income inequality and to identify the impact on poverty of reforms to money growth rules or interest-rate-targeting rules.
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