- Central bank easing actually improved household well-being and happiness following the global financial crisis, the Bank of England said in a study published Friday.
- Monetary policy used to pad against the financial crisis prompted concerns of growing inequality and worsened financial health.
- Yet the Bank of England’s actions in both 2007 and 2014 “had a positive and significant impact on household wellbeing” compared to a hypothetical where no relief measures were implemented, the researchers said.
- Younger households with large debts benefited the most from the monetary loosening, and older households reliant on savings income were at the greatest risk of slightly detrimental effects, the bank found.
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Monetary policy used to pad against economic collapse had positive effects on household well-being and happiness, the Bank of England found in a study published Friday.
Central banks around the world began unprecedented asset purchase programs and pushed interest rates to zero in the wake of the financial crisis. While the policies helped pull economies from the brink, concerns around growing inequality emerged. A 2017 survey showed UK households viewing lower interest rates as detrimental to their financial health.
Yet easing measures served as a boon for the public and the greater economy, Bank of England researchers Philip Bunn, Andrew Haldane, and Alice Pugh wrote. Monetary policy loosening in 2007 and 2014 “had a positive and significant impact on household wellbeing” in the UK relative to a lack of such policy. Lower unemployment and diminished financial distress accounted for 80% of the total welfare gain, while changes to overall wealth accounted for only a fraction of the improvement.
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The study heavily focused on past downturns, but lessons learned can apply to the current slump, the bank said.
“While our focus is on the global financial crisis, the channels that we consider will also be relevant for assessing the welfare implications of the monetary policy response to other shocks such as the spread of Covid-19 during 2020,” the researchers wrote.
Almost no household was left worse-off due to the policy actions, but some benefited more than others. Younger households with less secure jobs and higher debts enjoyed the largest improvements. Older populations leaning on savings income faced a greater risk of their overall situation worsening, but the scale of their losses was relatively small, the Bank of England found.
Still, the public is unlikely to attribute monetary policy’s beneficial effects to a central bank. Such actions are relatively indirect and can take months to shift economic prospects after their initial announcement. That delay is likely a reason for households’ underestimation of monetary policy and its positive impact, the bank said. Timely releases showing how monetary policy affects well-being could help the public better understand the connection, the researchers added.
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