Reducing Inequality Through Expansive Monetary Policy

Poor households are the beneficiaries

Although quantitative easing reduces the inequality of wealth. But the effect is so small that it is negligible. In particular, the inequality measured by the Gini coefficient rose from 68.09 to 68.07 points over the 2015 to 2017 observation period, while it increased by 0.3 point between 2010 and 2014. On the other hand, the effect on income inequality is greater. The increase in employment among low-income households reduces inequality, according to the ECB, as a result of asset purchases. However, this only applies to a large extent to the quintile with the lowest average income (€ 9,400). For all other income quintiles (19,700 euros, 29,900 euros, 44,700 euros and 95,300 euros), the effect is very small

European Central Bank in Frankfurt am Main. (Image: Michael Probst / AP)

The subject is so sensitive that monetary policy should only ensure stable prices. On the other hand, politics has the task of redistributing assets and income in a society – at least if it advocates such redistribution on a larger scale. In general, the stabilization of the business cycle by an expansionary monetary policy favors the reduction of unemployment and wages, and the expansive monetary environment also affects asset prices, as interest rates tend to fall and interest rates rise. asset prices for stocks and shares.

Regarding normal monetary policy, apart from quantitative easing, the ECB's measures would have significantly increased incomes and thus the consumption of low-income households because of the fall in unemployment. , notes the ECB. To varying degrees, all groups of households would benefit, including savers. In addition, the consumption of some households would be stimulated by low interest rates. Particularly low-income households (10.7% of all households) and, with some distance, households with their own housing stock, but only those with low liquidity (12.2%) benefited from the ECB's policy. The most important factor of this development is the better income due to the declining trend of unemployment. All households benefit from the ECB's policy through this component.

A direct comparison between Germany and Spain also shows that in both countries the different household groups are relatively equal by the increase in ECB policy revenues. to be favored. However, Spanish households greatly benefit from the effect of low interest rates because of the substantially higher property rate of about 80%. This effect plays a less important role in Germany with a rather low shareholding ratio of just over 40% or even a negative effect due to the high saving rate. In the end, all euro-zone countries would benefit from the ECB's policy. However, some countries would benefit more than others, like Italy and Spain.

Inflation Increases Inequality

Other studies look like slightly different results, as the ECB study. According to an analysis by Bank of England economists in May, monetary policy does not have a major effect on population inequality. On the contrary, the least wealthy households would at least benefit more from the expansionary policies of recent years than other groups. In its February 2016 monthly report, the Deutsche Bundesbank stated that the ECB's monetary policy measures should have resulted in a decline in the inequality of income distribution. In terms of assets, special measures would have increased inequality in the short term, probably because of rising stock prices and real estate. The effect in the medium and long term is not clear. In May, the evaluation by the Dutch central bank of existing studies on the assessment that conventional monetary policy had very different influences on the distribution of income and wealth. The influences of unconventional monetary policy, that is, quantitative easing, are also not clear. However, there is a consensus that higher inflation above a certain threshold will increase inequality.