Adverse Effects of Ultra-Loose Monetary Policies on Investment, Growth and Income Distribution

Andreas Hoffmann and Gunther Schnabl

No 5754, CESifo Working Paper Series from CESifo

Abstract: The paper analyses adverse investment, growth and distributional effects of ultra-loose monetary policies based on the monetary overinvestment theories of Hayek and Mises. We argue that ultra-loose monetary policies create incentives to substitute real investment by financial investment. When interest rates are expected to fall in the long term, the marginal and average efficiency of investments fall along, dampening GDP growth. We further show that the prolonged period of very low interest rates tends to distribute income towards higher income classes. This helps explain why consumer price inflation in most advanced economies does not pick up despite unprecedented monetary expansions.

Keywords: Hayek; Mises; monetary overinvestment theory; asymmetric monetary policy; financial crisis; marginal productivity of investment; secular stagnation (search for similar items in EconPapers)
JEL-codes: E52 E58 E63 F42 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_5754

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