experience of the past decades indicate that monetary policy ’ s best contribution to economic stability is to maintain price stability. moreover, credible central banks have a comparative advantage in see albanesi, stefania ( 2007 ), “ inflation and inequality ”, journal of monetary economics, elsevier, vol. 54 ( 4 ), pages 1088 – 1114, may, for evidence from 47 advanced and developing countries. see olivier coibion, yuriy gorodnichenko, lorenz kueng and john silvia ( 2012 ), “ innocent bystanders? monetary policy and inequality in the u. s ”, nber working papers 18170, national bureau of economic research, inc. bis central bankers ’ speeches this area, as the return to price stability becomes possible at lower costs in terms of output volatility. 13 the available empirical evidence supports the view of a complementarity between price and economic stability at the aggregate level. price stability appears to be conducive to economic growth, low unemployment and subdued income volatility. recent developments in the main advanced economies in terms of volatility of inflation and gdp growth confirm this insight and show that there has been no trade - off between the two variables. 14 volatility has been low in both variables in the euro area by comparison with other major economies. the crisis period is illustrative of this complementarity. after 2007, output and inflation volatility increased everywhere, but the combination remained more favourable in the euro area, which suggests that the recent policy easing aimed at checking deflationary risks also helped to sustain the economy. the ecb responded boldly to the bankruptcy of lehman brothers and to the subsequent crisis with a sequence of cuts in the policy interest rate and a range of measures such as fixed rate liquidity provision with full allotment, the extension of the list of eligible collateral, very long - term refinancing operations and, most recently, the outright monetary transactions. the ultimate justification for such measures was the need to pre - empt negative inflationary pressures and avoid a collapse in money and credit creation. by achieving this goal, the measures helped to cushion the effects of the financial crisis on the real economy. existing studies are consistent with the hypothesis that ecb measures were instrumental in preventing deflation and in containing the fall in economic activity at the height of the recession. 15 among our early non - standard measures, the switch to fixed rate tender procedures with full allotment appears

a daunting task to disentangle and quantify these channels empirically. inflation has a direct effect on income inequality through changes in the real ( i. e. consumer price - adjusted ) valuation of financial and non - financial assets. clearly, an unexpected fall in interest rates and an increase in inflation tend to hurt savers and benefit borrowers – the mechanism john maynard keynes referred to as the “ euthanasia of the rentier ”. 9 careful studies based on us data demonstrate that inflation hits in particular richer and older households, which hold the bulk of the economy ’ s wealth and whose asset holdings are typically imperfectly insured against surprise inflation. 10 can this evidence be interpreted as suggesting that the higher inflation is, the lower income inequality will be? or that higher inflation should be pursued as a way to reduce income inequality? my answer is no, because inflation is also particularly harmful to the poorest parts of the population. first, poorer households tend to hold a larger fraction of their financial wealth in cash, implying that both expected and unexpected increases in inflation make them see also stephen p. jenkins, andrea brandolini, john micklewright and brian nolan ( forthcoming ), the great recession and the distribution of household income, oxford university press. oecd ( 2011 ), op. cit. see john maynard keynes ( 1936 ), the general theory of employment, interest and money, chapter 24. see matthias doepke and martin schneider ( 2006 ), “ inflation and the redistribution of nominal wealth ”, journal of political economy, university of chicago press, vol. 114 ( 6 ), pages 1069 – 1097, december. bis central bankers ’ speeches even poorer. in addition, monetary policy shocks and surprise inflation can have an impact on inequality through other sources of income. income from labour and the unemployment of less - skilled workers tend to be adversely affected to a disproportionate degree during recessions. all in all, recent studies suggest that a higher inflation rate is accompanied by greater income inequality. 11 at the same time research on the us data finds that also contractionary monetary policy actions appear to increase inequality in earnings and total income. 12 a stability - oriented monetary policy, which aims to smooth the cycle and reduce its amplitude, ought therefore to cushion the impact of negative shocks on poorer households. however, it is not only the extent of income and wealth shocks that affects consumers ’ welfare, but also the fluctuation in their