The distributional footprint of monetary policy
Speech by Mr Claudio Borio, Head of the Monetary and Economic Department of the BIS, on the occasion of the Bank's Annual General Meeting, Basel, 29 June 2021.
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.
