SPEAKING POINTS
SVERIGES RIKSBANK
DATE: 2017-12-07
SE-103 37 Stockholm
(Brunkebergstorg 11)
SPEAKER: Deputy Governor Cecilia Skingsley
International Economic Forum of the Americas,
VENUE:
Tel +46 8 787 00 00
Fax +46 8 21 05 31
OECD Conference Center, Paris
registratorn@riksbank.se
www.riksbank.se
What role for monetary policy in achieving
inclusive and sustainable growth?
• I intend to say a few words about the role of monetary policy
in achieving inclusive and sustainable growth.
• I would like to start by saying that in general, a well-balanced
monetary policy, including a price stability target, contributes
to sustainable growth, and that sustainable growth is
normally positive for equality.
• Achieving the monetary policy goal of keeping inflation low
and stable leads indirectly to positive effects on equality, as
households with low incomes don't have the possibility to
shield themselves from the costs connected with high and
volatile inflation.
•
The press release from 15 January 1993, when the inflation
target in Sweden was announced, stated: "Price stability is a
prerequisite for sustained economic growth as well as full
employment and it prevents an arbitrary redistribution of
income and wealth".
• If inflation is higher than expected, borrowers benefit
because the value of their debts declines, while lenders and
those with large savings lose out. This type of large, arbitrary
redistribution between lenders and borrowers was common
in Sweden during the 1970s and 1980s, but is now history.
•
On the other hand, households with low incomes also suffer
if inflation is too low due to low aggregate demand. These
households are usually very exposed to the business cycle
and, more often than not, face unemployment and lower
living standards when there is a trough. So, again, low and
stable inflation is an important contribution from monetary
policy.
• When looking at effects on equality, there are different
channels from monetary policy at play.
•
These include the exchange rate, effects on stock prices,
house prices and the labour market.
• Low interest rates increase demand and are often associated
with higher share prices and house prices. As shares are
typically owned by high income earners, this increases the
capital income for those at the upper part of the income
distribution1. House ownership is normally more evenly
distributed than shares2, so higher house prices would have
smaller effects on equality.
•
The labour market channel is sometimes ignored when
analysing the monetary policy effects on equality. This effect
is not easy to calculate, but it is an important channel.
• When attaining an inflation target, this normally goes hand in
hand with an economy avoiding too much of booms and
busts in the business cycle and less swings in unemployment.
Less uncertainty over economic developments and economic
policy is good for investment, and hence for growth and
labour market outcomes. So, labour market developments
are important for income equality.
•
In recent years, in order to meet their price stability targets,
many central banks have pursued a very expansionary policy,
including low or even negative policy rates, as well as
purchase programmes of securities. These policies have
attracted criticism, saying they increase inequality, but I
disagree.
• Given the weak trend in growth in many countries, a less
expansionary monetary policy than pursued during recent
years would have led to higher unemployment than was the
case. In that sense, monetary policy could be argued to have
contributed to lower income inequalities, as unemployment
could lead to large negative effects on household income.
Many of those households, who would have experienced
unemployment, would then have fallen to lower income
deciles, contributing to higher income dispersion. Most
studies that include the labour market effect come to the
conclusion that the overall effect of expansionary monetary
policy on inequality is that it slightly decreases it. Or in short,
the dampening effect of lower unemployment offsets the
effects from higher share prices. But the overall effect seems,
if any, to be small.
• To sum up, the very expansionary monetary policy conducted
during recent years in some countries could be argued to
have had a positive net effect, albeit small, on equality. The
positive employment effect normally seems to dominate
over the negative effects3.
•
We at the Riksbank don't per se take equality into
consideration when taking monetary policy decisions. It is
not part of our mandate. This is more effectively done by
fiscal policy. I don't believe any other central bank specifically
takes this into account either.
• But going forward, the Swedish parliamentary committee on
finance has asked the Riksbank to evaluate the distributional
effects of the expansionary monetary policy in recent years.
So this is an area we are working on now and will continue to
do so.
•
As the theme of this conference is "reshaping globalisation" I
would like to end by adding some words about my views on
the global perspective on equality and the possible
explanations for increased inequality in many developed
economies during recent decades. As I have said, the
contribution from monetary policy to equality should in my
view in general be minor.
• I do not think you can talk about globalisation without also
talking about technology. Some argue that increased
inequality in many countries is due to the latest technological
progress having been skills biased, resulting in a rise in the
skill premium and the decline of some labour market
institutions in advanced economies, emerging markets and
developing countries4. The decline of labour market
institutions includes lower trade union membership, which
reduces the relative bargaining power of labour, and more
flexible labour market institutions that can pose challenges
for workers with low skills. Technological progress combined
with globalization seems to have played at least some role in
increasing inequality within countries.
• The discussion of the effects of globalization is interesting.
Globalization has for long been a natural part of the Nordic
economies. Our dependency on foreign trade is much higher
than the global average. There is among the Nordic countries
an acceptance on the positive long term net effects on
productivity, growth and employment. Globalization creates
opportunities for new jobs.
•
The reason for the positive view on globalisation in the
Nordic countries might be a broader social security net and
public policy that help people who lose their jobs due to
trade as well as technology. Training and education improve
employability and reasonable replacement ratios in
unemployment benefit and other social benefits can mitigate
the negative short-term effects of globalization. These are all
fiscal or structural policy issues, outside the scope of
monetary policy, but still important in a global perspective.
• To summarize: Globalisation and technology are strong
forces that rapidly shape the world. Policymaking is needed
to facilitate the changes that ensue for individuals,
companies, the public sector and countries as a whole. In
that policymaking, I want to stress that each and every policy
area should do what it does best to make good contributions
when the changes are being managed.
•
Thank you!
--------------------------------
References
• Alvaredo, F., A. B. Atkinson, T. Piketty, and E. Saez (2013),
"The Top 1 Percent in International and Historical
Perspective", Journal of Economic Perspectives Volume
27, Number 3, 2013.
•
Bivens, J., (2015), "Gauging the Impact of the FED on
Inequality During the Great Recession", Hutchins Center
on Fiscal and Monetary Policy at Brookings, Working
Paper 12, June 2015.
• Coibion, O., Y. Gorodnichenko, L. Kueng, J. Silvia, (2017),
"Innocent Bystanders? Monetary Policy and Inequality",
Journal of Monetary Economics, Volume 88, June 2017.
•
Deutsche Bundesbank (2016), "Distributional Effects of
Monetary Policy", Monthly Report, September 2016.
• Frederiksen, A., O. Paulsen, (2010) "Increasing Income
Inequality: Productivity, Bargaining and Skill-Upgrading",
IZA Discussion Paper Series No. 4791, February 2010.
•
Furceri D., P. Loungani, and A. Zdzienicka (2016), "The
Effects of Monetary Policy Shocks on Equality", IMF
Working Paper, WP/16/245, December 2016.