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Fridays Academy: Gender and Monetary Policy

Ignacio Hernandez's picture

As usual on Fridays, from Raj Nallari and Breda Griffith's lecture notes.

Braunstein and Heintz (2006) report that the costs of inflation in terms of reduced employment are disproportionately borne by women.  They compiled data for 51 “inflation reduction episodes” in 17 low- and middle-income countries for the period 1970-2003.  To assess the employment effects of inflation reduction periods, they looked at actual employment trends during each inflation reduction episode, disaggregated by gender, and compared these to long-run employment trends (estimated by applying a Hodrik-Prescott filter to the employment series).  They also examine indicators that suggest how monetary policy responded during inflation reduction episodes using a similar approach. We compare average short-term real interest rates, growth rates of the real money supply, and indicators of the real exchange rate to their long-run trends to see if these variables deviated from trend during inflation reduction episodes. Their preliminary observations are worth repeating and presented below:

  • Inflation reduction episodes occur simultaneously across a large number of countries suggesting common external factors (say oil shocks, other commodity shocks) that influence prices in low- and middle-income countries of their sample;
  • If employment decreases during an inflation reduction episode, it is likely that women will experience a larger loss of employment, in percentage terms, than men. In the majority of cases, contractionary monetary policy by which inflation reduction occurs, has a disproportionately negative impact on women. However, during inflation reduction episodes in which employment expands, the gender-specific impact is ambiguous;
  • Countries that respond to inflationary pressures by raising real interest rates above the long-run trend are more likely to experience a slow-down in the growth of employment relative to those countries that keep interest rates in line with or below the long-run trend, with concomitantly higher losses for relative female employment. However, countries with negative real interest rates do not appear to be able to increase employment growth by lowering real interest rates still further.
  • There appears to be no link between changes in the real exchange rate and the impact of inflation reduction on employment in general. However, we did find that real exchange rates (RERs), defined as inflation-adjusted nominal exchange rates, seem to impact the gender bias of contractionary inflation reduction episodes. In all cases where women experienced relative employment gains during employment contractions, exchange rates either depreciated or showed no deviation relative to long-run trends;
  • Tightening the real money supply also seems to be negatively associated with employment in general and women’s employment in particular.  These results suggest that contractionary monetary policy aimed at reducing inflation often has a disproportionately negative impact on women’s employment, an effect that may be eased by maintaining a competitive exchange rate. Conversely, non-contractionary inflation reduction is not necessarily favorable to women’s formal employment in all circumstances.


In practice, deflationary bias in macroeconomic policy is identified as an important monetary issue for women (e.g. UN World Survey on the Role of Women in Development of 1999). The survey defines deflationary bias as macroeconomic polices which keep paid employment and GDP growth below their potential. It is argued that liberalized financial markets coincide with higher interest rate spreads between saving and lending rates (because of oligopolistic nature of banking system in developing countries) despite low inflation rates, and tight fiscal policies of keeping taxes and public spending low.  Because domestic interest rates tend to be high in developing countries, private capital inflows, including migrant remittances, are attracted but the benefits of such extra finance do not outweigh the adverse impact of high domestic interest rates on lower investment (and lower GDP growth) and credit use by the poor, particularly by women (because of higher interest rates on micro-credit and financing of small enterprises).

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