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Monetary policy, inequality and political instability

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  • Pablo Duarte
  • Gunther Schnabl

Abstract

Voters in the industrialised countries are increasingly expressing dissatisfaction by dissenting from the established political parties and candidates. Based on the concepts of justice by Hayek, Rawls and Buchanan, we argue that the growing dissatisfaction is rooted in the asymmetric pattern of monetary policies since the mid‐1980s for two reasons. First, the structurally declining interest rates and the unconventional monetary policy measures have granted privileges to specific groups. Second, the increasingly expansionary monetary policies have negative growth effects, which have reduced the scope for compensation of the ones excluded from the privileges. As a result, the acceptance of the prevailing economic and political order is undermined and political instability increases.

Suggested Citation

  • Pablo Duarte & Gunther Schnabl, 2019. "Monetary policy, inequality and political instability," The World Economy, Wiley Blackwell, vol. 42(2), pages 614-634, February.
  • Handle: RePEc:bla:worlde:v:42:y:2019:i:2:p:614-634
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    File URL: https://doi.org/10.1111/twec.12730
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    References listed on IDEAS

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    1. Joe Peek & Eric S. Rosengren, 2005. "Unnatural Selection: Perverse Incentives and the Misallocation of Credit in Japan," American Economic Review, American Economic Association, vol. 95(4), pages 1144-1166, September.
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    6. Andreas Hoffmann & Gunther Schnabl, 2011. "A Vicious Cycle of Manias, Crises and Asymmetric Policy Responses – An Overinvestment View," The World Economy, Wiley Blackwell, vol. 34(3), pages 382-403, March.
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    1. repec:spr:wirtsc:v:98:y:2018:i:7:d:10.1007_s10273-018-2322-7 is not listed on IDEAS

    More about this item

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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