Expansionary monetary policy and its side effects

Abstract

While assessing the effectiveness of anti-crisis macroeconomic policy from the point of view of the length and depth of the recession induced by a crisis, it can be concluded that governments and central banks have fulfilled their role correctly (Mishkin, 2009) – the recession measured by a decrease in the GDP was relatively shallow and short, obviously with some exceptions, such as Greece, where the symptoms of recovery in the real sphere are still not visible today. On the other hand, however, there are many doubts about the future effectiveness of monetary policy instruments – nominal rates of a central bank cannot be further reduced; the policy pertaining to the establishment of the level of minimum reserves of banks has practically ceased to be of any importance in view of the enormous funds amassed by banks. These are dilemmas pertaining to the required reaction of the central banks upon the appearance of speculative bubbles (Mishkin, 2011). Many controversies arise in connection with the side effects of the expansive monetary policy implemented by the main central banks in the world (BIS, 2012). An exceptionally loose monetary policy constitutes a serious hazard for the appearance of speculative bubbles in some markets, and emerging economies must face challenges connected with investors’ actions who, within the so-called ‘carry trade’, destabilise the exchange rates and increase the inflation pressure in countries such as Brazil and India. The aim of this paper is to indicate that the monetary policy conducted since 2008 by the most important central banks in the world is significantly contributing to the deepening of the level of income inequality in contemporary economies. In the first part of the text, apart from preliminary remarks, the structural reasons for macroeconomic inequities, which have accumulated since 2007, will be presented. Next, the channels of influence of this monetary policy on the income structure in the current situation of the global economy will be analysed.