Germany’s Bundesbank has fought back against accusations that ultra-loose monetary policy has stoked inequality, dismissing as unsubstantiated the charge that negative interest rates and huge asset purchases have widened the gap between the rich and poor.
The research paper is particularly striking because the European Central Bank has been widely criticised in Germany, with banks, savers and politicians complaining about negative rates.
The Bundesbank itself has frequently attacked the ECB’s unorthodox policy, although Jens Weidmann, its president, this year rebuked German politicians for seeking to put pressure on ECB chief Mario Draghi.
The German central bank’s latest findings are largely a response to academics and non-governmental organisations who have claimed that policies such as quantitative easing have contributed to inequality by raising asset prices, thereby disproportionately favouring the well-off.
“The statement seen in many places — that extraordinary monetary policy measures have increased inequality — cannot be substantiated,” the Bundesbank said in its latest monthly report.
It added that such accusations were based on analysis too focused on the immediate impact of central bank policies and not enough on their longer-term consequences.
“While, for example, stock prices respond almost immediately to adjustments in monetary policy, the price of illiquid assets changes only with a clear delay — as does the effect on real economic variables such as consumption and investment and employment,” the Bundesbank said.
“It follows that the distributional effects of monetary policy can change with advancing time.”
The Bundesbank also said regular interest rate cuts may have even led to a slight decrease in income inequality, while acknowledging that the impact of this over recent decades had been “rather insignificant”.
However, previous research from the Bank of England has indicated that central banks’ asset purchases under their quantitative easing programmes have benefited the most wealthy because they tend to own a greater share of financial assets.
QE has been the driving force behind surging prices for government and corporate bonds and has also supported equity prices. The policy works by forcing investors to take on more risk as central bankers buy their safer assets from them.
The Bundesbank said that critics’ focus on the impact of QE on asset prices neglected the effect of monetary stimulus in preventing a much more damaging wave of joblessness.
It was impossible to know how high unemployment would have been if central banks had not stepped in and provided support, the research said. Unemployment in the eurozone remains in double figures, but has fallen since the ECB unveiled its QE programme towards the start of 2015.
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