Once somewhat of a technical backwater, the distributional consequences of monetary policy have surged to the forefront of public debate in recent years. Revisiting the topic in 2021, the BIS Annual Economic Report concluded that the well documented long-term rise in economic inequality since the 1980s arises largely from structural factors, beyond the reach of monetary policy and best addressed by fiscal and structural policies. On this view, monetary policy can most effectively contribute to a more equitable society by fulfilling its mandate. In this way, the Report suggested, monetary policy can address the key factors that cause inequality to rise at shorter horizons. Inflation should be kept low, keeping in check the macroeconomic and financial instability that disproportionately hurts the poor. This is especially relevant nowadays, given the surge in energy and food prices that account for a larger share of consumption among lower-income households. In addition, central banks can also help mitigate economic inequality wearing their “non-monetary hats”, as prudential authorities, promoters of financial development and inclusion, and guardians of payment systems. To complement these arguments, this volume investigates the cyclical dimensions of inequality, a topic that has been somewhat neglected, in part due to the lack of higher-frequency data on inequality. The aim is to extend previous studies and examine a new facet of inequality: its persistence or “hysteresis” after recessions.

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