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