Is There an Appropriate Monetary Policy Framework to Achieve a More Equitable Income Distribution or Do Central Bank Mandates Really Matter? Interest-Rate Rules versus a Full-Employment Policy

Abstract

This article focuses on monetary policy from a Post-Keynesian/Institutionalist perspective, where there are essentially two approaches to how monetary policy can be framed. On the one hand, the rules-based approach suggests that discretionary monetary policy should be abandoned in favor of central bank fixed interest-rate rules that would seek to maintain a “fair” and stable rentier income share. On the other hand, the full-employment policy approach acknowledges that discretionary monetary policy can help to achieve full employment and, by doing so, could affect both the rentier share and the wage/profit shares of national income. Thus, while fixed interest-rate policy rules focus primarily on the rentier/non-rentier income relation, thereby leaving all concerns for unemployment and the wage-profit distribution primarily to fiscal policy, a full-employment monetary policy might directly contribute, in coordination with fiscal policy, to attain higher employment levels and desirable wage shares. This article argues, based on comparative experiences between Canada and the United States in the last four decades, that a full-employment monetary policy, or a multi-goal central bank mandate, in practice would be not only more politically feasible, but also more consistent with an equitable and stable overall functional distribution of income compared to strict interest-rate policy rules

Keywords:

• monetary policy
• interest rate rules
• central bank mandate
• income distribution

JEL Classification Codes:

• E02
• E12
• E52
• E58

Additional information

Notes on contributors

Mario Seccareccia

Mario Seccareccia and Guillermo Matamoros Romero are respectively professor emeritus of economics and doctoral candidate in economics at the University of Ottawa, Ottawa, Ontario, Canada. This article constitutes part of a broader research project supported by the Institute for New Economic Thinking (INET) titled: “Unemployment, Full Employment and Macroeconomic Policy: Learning from the COVID-19 Crisis.” Without implicating them, the authors would like to thank the participants of the AFEE session, especially the session organizer, Charles Whalen, and Yan Liang, as well as Thomas Ferguson, Warren Mosler, Louis-Philippe Rochon and Andrew Sharpe for their comments.

Guillermo Matamoros Romero

Mario Seccareccia and Guillermo Matamoros Romero are respectively professor emeritus of economics and doctoral candidate in economics at the University of Ottawa, Ottawa, Ontario, Canada. This article constitutes part of a broader research project supported by the Institute for New Economic Thinking (INET) titled: “Unemployment, Full Employment and Macroeconomic Policy: Learning from the COVID-19 Crisis.” Without implicating them, the authors would like to thank the participants of the AFEE session, especially the session organizer, Charles Whalen, and Yan Liang, as well as Thomas Ferguson, Warren Mosler, Louis-Philippe Rochon and Andrew Sharpe for their comments.