Investigating the asymmetric effects of inflation rate on income inequality in business cycles: Markov switching approach

Document Type : Scientific paper

Authors

1 Member of Faculty of Economics, Imam Sadiq University

2 Islamic Azad University Science and Research Branch

3 Imam Sadiq University

Abstract

Income inequality is one of the problems that developing countries are dealing with. Since the inflation rate can have a significant effect on the income distribution in the economy, in this research, an attempt has been made to analyze the non-linear relationship between the inflation rate and income inequality in the Iranian economy by applying the Markov switching approach and existing theories in the field of Markov switching, with seasonal data. The time period from 1385 to 1400 and by introducing other influential variables such as unemployment rate and liquidity volume will be tested and investigated; The research results show that there is a non-linear relationship between the inflation rate and income distribution. Inflation rate coefficient is 0.00975702 in regime zero (boom period) and 0.0327855 in regime one (recession period), which shows the positive and significant effect of inflation rate on the Gini coefficient; In other words, the non-linear effects of the inflation rate on income distribution both during the recession and boom are significant in regime zero (prosperity) and meaningless in regime one (recession). Also, the effects of unemployment rate on income inequality are positive and significant in both regimes, the volume of liquidity has a negative and significant effect in the first regime and a positive and significant effect in the second regime on income distribution.

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History

  • Receive Date: 02 March 2024
  • Revise Date: 16 June 2024
  • Accept Date: 28 June 2024

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