The new global head of economic research at Nordea Bank AB said it has become clear that the extreme monetary policies that followed the global financial crisis are making the rich richer and everyone else more indebted.
Nordea global head of macro research Kristin Magnusson Bernard, who used to work with financial stability at the European Central Bank, said the lessons learned from cutting interest rates to historic lows mean policymakers might well look to new tools to support economies in the future.
Though central bankers displayed “remarkable creativity” during the financial crisis, they could come up with “a few more” ideas, Bernard said in a telephone interview.
“Probably you could prop up the economies a bit more and probably you could keep the markets at a high, but what’s the price for that?” Bernard said. “You will have a lot of credit extensions to weaker households, while you will have a lot of wealth gains for the rich, and at some stage that discussion starts to bite.”
No corner of the world has had negative rates longer than the Nordic region, with Denmark standing out as the absolute record holder after first going below zero in 2012.
Coincidentally, income inequality has grown in Denmark, with the Gini coefficient rising to 27.6 last year from 26.5 percent in 2012.
Gini coefficients measure income distribution across the economy — the lower the number, the greater the level of equality.
Despite the increase, Denmark still boasts one of the world’s highest levels of income equality.
With extremely low interest interest rates, “you will have some households who benefit disproportionately from having a lot of financial assets, while others will be very, very exposed to credit bubbles,” Bernard said.
Another unintended consequence of extreme monetary stimulus has been the politicized dimension of the policy.
“If you’re the only game in town, you enter into a political sphere, and the fact that you’re becoming such a political heavyweight will question your independence,” Bernard said. “Many of the central banks are mindful of being close to that border.”
Concerns about uneven effects also apply to macro-prudential policies, such as counter-cyclical capital buffer requirements for banks, she said.
“You typically see that monetary policy gets into all the cracks, and macro-prudential policy not so much,” she said. “Macro-prudential tools are politically very, very unpopular because they hit some households very, very hard.”
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