Distributional Impact of Unconventional Monetary Policies

This note was published by the Independent Evaluation Office of the IMF as part of a Background Paper on “The Risks and Side Effects of UMP: An Assessment of IMF Views and Analysis”. The full note is available as a chapter in the Background Paper here.

The sustained application of accommodative monetary policies has led to concerns that they were aggravating inequality. The criticism has come from several quarters, from academics to private sector participants, from politicians to media and civil society organizations. Some argued that by boosting housing and stock prices, QE benefited people in the upper part of the wealth distribution more than others, while low to negative returns on bank deposits and fixed-income instruments were depressing incomes for the elderly dependent on such savings. Asset purchases were also alleged to benefit mainly a few economic sectors, such as the financial industry, yielding a lopsided recovery. Doubts were also raised about the effectiveness of QE in stimulating economic activity and thus generating an increase in labor income for lower-income households.

In response to such concerns, prominent central bankers have emphasized the broader gains to labor income from policies that contributed to bringing unemployment rates down from high levels. They have also suggested that any concerns about inequality were more properly addressed through fiscal policies than by scaling back UMP.

Over the past decade, the IMF has done considerable work on the drivers of inequality, which has helped guide IMF country advice. The IMF has also fostered discussion on the distributional effects of monetary policy, conventional and UMP. However, the IMF has not been in the forefront of analytic work on the possible distributional impacts of UMP and concerns about such impacts have not been given much attention in its policy advice. This note reviews the evidence on the distributional effects of UMP as a basis for assessing whether greater attention is warranted to such effects in future IMF analytic work and policy advice.