Monetary policy, technology and inequality

Speech based on remarks by Mr Luiz Awazu Pereira da Silva, Deputy General Manager of the BIS, at the Centre for Economic Policy Research / International Monetary Fund / Peterson Institute for International Economics roundtable: "Central banking and inequality: Covid-19 and beyond", 11 December 2020.

Post-Global Financial Crisis, a typical question triggered by the wealth effect of unconventional monetary policies has been whether monetary policy has contributed to rising income and wealth inequality. The indications are that it has not been among the main drivers of income inequality. For instance, as to what regards monetary frameworks, income inequality has risen in inflation targeting countries and in non-inflation targeting countries alike, and in countries with or without unconventional monetary policies. Monetary policy stabilises the business cycle and inflation, and thus the more cyclical components of inequality. The conventional view is that monetary policy can limit the volatility of inflation, which penalises first and foremost the poorest households, whose assets, such as cash and bank accounts, are not protected against inflation. More recently, however, inflation has become a lower risk, at least in most OECD countries. Hence the debate on monetary policy and inequality has turned to employment, or rather unemployment risk. Indeed, cyclical increases in unemployment are much more likely to lower the income of workers with fewer marketable skills. When national unemployment rises, the increase is much larger in the poorest neighbourhoods and among ethnic minorities.