The Costs and Welfare Effects of ECB's Financial Repression Policy: Consequences for German Savers

Gerhard R?sl () and Karl-Heinz T?dter ()
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Gerhard R?sl: Faculty of Business Administration, University of Applied Sciences ¨C OTH Regensburg Seybothstrasse 2, 93053 Regensburg, GERMANY
Karl-Heinz T?dter: Bundesbankdirector (ret.), Deutsche Bundesbank Wilhelm-Epstein-Strasse 14, 60431 Frankfurt am Main, GERMANY

Review of Economics & Finance, 2015, vol. 5, 42-59

Abstract: The losses in interest income of German savers as a result of ECB¡¯s monetary policy of extremely low interest rates are estimated at around €65bn pa. These losses exceed the financial costs of capital yields taxes and the inflation tax on consumer prices taken together. However, the calculations do not take into account that (especially public) debtors benefit from low interest rates. We develop new measurement concepts and apply an overlapping generation model in order to calculate stepwise the net welfare costs (excess burden) for the German economy. Capital yields taxes have an excess burden of €10bn per year. The excess burden from 1.5% inflation totals at €33bn pa. In comparison, the monetary policy of low interest rates that is conducted by the ECB since 2010 created an excess burden of €37bn or 1.4% of GDP pa. Hence, the cumulated net welfare losses resulting from the ECB policy of ultra-easy money already exceed the primary effects of the financial crisis.

Keywords: Financial repression; Interest rate policy; ECB; Savings losses; Welfare; OLG-model; Distortions; Deadweight loss; Retirement consumption (search for similar items in EconPapers)
JEL-codes: E21 E58 I31 (search for similar items in EconPapers)
Date: 2015
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