Monetary Policy and Inequality

Claudio Borio

Ensayos Económicos, 2022, vol. 1, issue 79, 148-158

Abstract: The nexus between monetary policy and inequality has attracted attention since the Great Financial Crisis. By keeping interest rates unusually low for unusually long to engineer a recovery and raise inflation, central banks have contributed to the perception that they have been raising inequality. But understanding the nexus requires a more holistic analysis. Long-term trends in inequality are not a monetary phenomenon: they reflect structural forces that are beyond the reach of monetary policy. Nevertheless, it can do a lot to foster a more equitable distribution over business cycles: its mandate requires it to tackle the major sources of inequality over business fluctuations: price, macroeconomic and, hence, financial instability. Changes in the nature of the business cycle have complicated this task, calling for greater support from other policies.

Keywords: business cycle; financial stability; inequality; inflation; monetary policy (search for similar items in EconPapers)
JEL-codes: D63 E30 E31 E44 E52 (search for similar items in EconPapers)
Date: 2022
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