Mike responds to a recent Nick Rowe post. Nice quote from Wynne Godley, too.
Read it at Modern Monetary Realism
The Distributional Consequences of Monetary Policy
by Michael Sankowski
What I would add to it is that cb's running a NAIRU-based monetary policy raise rates to quell inflation, which typically happens as they see wage pressure developing in addition to rising CPI. This provokes an economic contraction that increases the buffer of unemployed and reduces labor bargaining power, decreasing wage pressure.
Then to stimulate the economy when sufficient consolidation has taken place, the cb lowers rates to spur borrowing and spur a new cycle of investment and consumption.
However, as Mike notes the lowering of interest rates translates first into rising asset prices with the distributional effects he notes. The as consumer borrowing increases, price pressures increase, which then results in wage pressure in reaction. Then, the cycle is repeated.
So the outcome is higher asset prices at the beginning of the cycle, then increasing consumer indebtedness, and then falling real wages resulting in increasing worker demands for increased wages to keep up with inflation.
So, yes, monetary policy does have distributional effects. There are winners and losers. See if you can identify them.