Recognizing the importance of redistribution channels of monetary policy
From Amir Sufi's Andrew Crockett Memorial Lecture:
During normal times, monetary policy affects the real economy primarily through redistribution channels that require an appreciation of differences across households. High income and low income individuals respond very differently to monetary policy shocks, as do savers and borrowers. Monetary policy has been especially weak in advanced economies over the past 7 years because the redistribution channels of monetary policy have been severely hampered. Standard representative agent-based macroeconomic models miss this key insight, and have therefore been an insufficient guide to policy decisions. A framework that recognizes the importance of redistribution channels of monetary policy can guide central bankers on what policies are most likely to be effective. The same policy may have different effects on the real economy depending on the distribution of debt capacity across individuals.
Given that the concerns about redistributive effects getting stronger, this VoxEU piece is relevant:
One current generic problem with QE in the form of large-scale bond purchases when yields are already at record lows is that risks of significant losses for the central bank increase, e.g. should it need to reverse QE in the future.
The second problem is that if bond yields are driven lower, this tends to have adverse distributional implications because it channels more money toward the wealthy who own the assets whose prices are boosted by QE.
Clearly, the ECB must develop a strategy that works in the Eurozone’s unique system, instead of attempting to follow the Fed’s lead. ...
... One simple solution would be to distribute the funds to governments, which could then decide how best to spend them in their countries. But the EZ’s rule against using the ECB to finance government spending bars this approach.
A more reasonable option would be to provide all workers and pensioners with social-security numbers (or the local equivalent) with a payment from the ECB, which governments would merely aid in distributing.
Some evidence on the effects of QE.