The Distributional Effects of Disinflationary Monetary Policy

Willem Thorebeck
Additional contact information
Willem Thorebeck: The Jerome Levy Economics Institute

Macroeconomics from University Library of Munich, Germany

Abstract: Macroeconomists traditionally focus on the aggregate consequences of disinflationary monetary policy, not its distributional effects. This paper considers these distributional effects. The evidence indicates that contractionary monetary policy harms interest rate-sensitive industries by depressing output and employment and increasing the cost of capital. These industries are further hurt as declines in output and increases in the cost of capital reduce capital formation. The evidence also indicates that tight monetary policy in 1981-82 decimated the earnings of small firms. These earnings have remained at low levels since then. Finally, the evidence indicates that wealth holders are helped by contractionary monetary policy as interest rates increase and inflation declines. Before tightening monetary policy to pursue these benefits, however, policy makers should weigh carefully the damage that they will inflict on interest-sensitive sectors and small firms.

JEL-codes: E (search for similar items in EconPapers)
Pages: 39 pages
Date: 1998-12-02
New Economics Papers: this item is included in nep-mon
Note: Type of Document - Acrobat PDF; prepared on IBM PC; to print on PostScript; pages: 39; figures: included
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://econwpa.ub.uni-muenchen.de/econ-wp/mac/papers/9812/9812002.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpma:9812002

Access Statistics for this paper

More papers in Macroeconomics from University Library of Munich, Germany
Bibliographic data for series maintained by EconWPA ( this e-mail address is bad, please contact ).