In a Staff Working Paper, the Bank of England’s Philip Bunn, Alice Pugh, and Chris Yeates discuss how monetary policy easing following the financial crisis affected income and wealth of different age groups.
The authors analyze survey panel data (ONS Wealth and Assets Survey) on households’ characteristics and balance sheet positions. They argue that
the overall effect of monetary policy on standard relative measures of income and wealth inequality has been small. Given the pre-existing disparities in income and wealth, we estimate that the impact on each household varied substantially across the income and wealth distributions in cash terms, but in percentage terms the effects were broadly similar. We estimate that households around retirement age gained the most from the support to wealth, but that support to incomes disproportionately benefited the young. Overall, our results illustrate the importance of taking a broad-based approach to studying the distributional impacts of monetary policy and of considering channels jointly rather than in isolation.
Within a complex and constantly evolving economy, a simplistic inflation-targeting framework will not stabilize the value of money. Only an equally complex and highly adaptable monetary-policy approach – one that emphasizes risk management and reliance on policymakers’ judgment, rather than a clear-cut formula – can do that. Such an approach would be less predictable and eliminate forward guidance, thereby discouraging excessive risk-taking and reducing moral hazard. … intermediate targets … could potentially be applied to credit, interest rates, exchange rates, asset and commodity prices, risk premiums, and/or intermediate-goods prices. … Short-term consumer-price stability does not guarantee economic, financial, or monetary stability.
Ralph Atkins reports in the FT about an updated McKinsey study on indebtedness. The study highlights rising government debt levels; rising household indebtedness and housing prices; and the quadrupling of China’s debt within seven years.
Katharina Knoll, Moritz Schularick and Thomas Steger discuss data on long-run house price trends in Vox. House-price-to-income ratios have risen after World War II. Rising land prices played a crucial role.