ECB’s bond-buying may have cut income inequality, but only a bit: research

FRANKFURT (Reuters) – The European Central Bank’s 2.6 trillion euro bond purchase scheme may have reduced income inequality, fresh research by ECB economists showed, disputing critics who argue that lavish stimulus mainly benefited the wealthiest of households.

Pushing up economic growth, the stimulus fueled job creation, benefiting households among the poorest 20 percent of people by compressing income distribution and temporarily halting a widening of the gap between rich and poor, the paper, which is not necessarily the ECB’s opinion, argued.

Critics of the ECB scheme, devised to generate inflation, argue that it robs the poor and ordinary savers while benefiting the wealthy with ample financial assets and households with big mortgages.

“The reduction in unemployment and in income inequality is particularly marked in those countries, such as Spain, where the initial unemployment rate is higher,” the paper argued. “The effect can mostly be ascribed to the disproportionately large drop in the unemployment rate of low-income households.”

Still, the bond purchases have done little to reduce wealth inequality and the researchers argue that even in the case of incomes, the impact is small compared with the historical trend for rising inequality.

“The overall effects of monetary policy on income inequality are modest, compared to its observed secular trend,” the paper, published by the ECB as a “Discussion Paper”, suggested.

Quantitative easing, as the bond-buying program is known, is set to run until the end of the year. But the ECB is expected to hang on to its pile of bonds for years, which should help hold borrowing costs at rock-bottom levels to keep the recovery going.

The paper also argued that while low rates do hurt the value of simple savings products, the owners of such assets were compensated for their loss through a healthier economy that improved household purchasing power by pushing employment to record highs.

“Monetary policy in recent years benefited most households and did not contribute to an increase in wealth, income or consumption inequality,” the paper argued.

To read the paper, click on: https://www.ecb.europa.eu/pub/research/discussion-papers/html/index.en.html

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