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Shedding Heterogeneity in Responses of Inflation to Monetary Policy in the Philippines

Central banks are among the institutions at the forefront of addressing the impact of the Coronavirus Disease 2019 (COVID-19) pandemic on certain aspects of the economy. With inequality seen to rise due to the ongoing crisis, it is important to understand how monetary authorities can create sound policies to aid in tackling this issue. Using a Vector Autoregression (VAR) and Bayesian Regression models, this paper shows that monetary policy affects inequality through its influence on Headline Inflation and the Bottom 30% percent Income Household Inflation. Aside from different structural policies that are needed to address this issue, maintaining low and stable inflation, and implementing equitable “non-monetary” policies across different income households can help mitigate the inflation aspect of inequality in the Philippines.


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