Cristiano Cantore, Filippo Ferroni, Miguel León-Ledesma, 27 March 2019

Despite its importance, there is no systematic empirical evidence on the effect of monetary policy shocks on the share of output allocated to wages. Using data for five developed economies, this column finds that standard models generate the ‘wrong sign’ for the effect when compared to the empirical results, and that the labour share temporarily increases following a positive shock to the interest rate. Using the standard models to analyse the distributional effects of monetary shocks could be misleading.  

Adam Elbourne, Kan Ji, Bert Smid, 13 March 2019

Previous research has shown that changes to the size of the ECB’s balance sheet were followed by meaningful changes in macroeconomic aggregates. This column argues that the econometric technique these studies employed does not provide reliable estimates. Impulse responses to purported balance sheet shocks are statistically indistinguishable from those from nonsensical identification schemes. The effectiveness of the ECB’s balance sheet policies is therefore still unproven.

Javier Cravino, Ting Lan, Andrei Levchenko, 16 June 2018

Monetary policy shocks can affect different types of agents differently. These distributional effects can have important consequences for policy effectiveness. Using US data, this column explores how shocks differentially affect the prices faced by households with different incomes. The results suggest that middle-income households’ consumption baskets have more volatile prices than those of high-income households, and they are therefore more exposed to monetary policy shocks.

Olivier Coibion, Yuriy Gorodnichenko, Lorenz Kueng, John Silvia, 25 October 2014

There are several conflicting channels through which monetary policy could affect the distribution of wealth, income, and consumption. This column argues that contractionary monetary policy raised inequality in the US, while expansionary monetary policy lowered it. This evidence stresses the need for monetary policy models that take into account heterogeneity across households. Current monetary policy models may significantly understate the welfare costs of zero-bound episodes.   

Lucrezia Reichlin, Domenico Giannone, Michele Lenza, Huw Pill, 23 November 2010

Did monetary policy errors cause the economic collapse of the early 1930s? What lessons have monetary policymakers and central banks taken from this episode? Discussion Paper 8125 sets out to address these questions, in the context of the financial crisis of 2008-09 and with application to the euro area.

Katrin Assenmacher-Wesche, Stefan Gerlach, 12 March 2008

Many observers have argued that central banks should use monetary policy to prevent the rise of asset price bubbles. Recent research shows that monetary policy is too costly and too slow to serve such a role.


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