Monetary Policy Has Actually Made You Happier, BOE Study Finds


Monetary policy decisions may make you feel richer if your mortgage payments fall after an interest-rate cut, or poorer if that means a lower return on your savings. You probably haven’t considered whether you’re happier as a result though, and -- according to the Bank of England -- in recent years you probably were.

The majority of U.K. households experienced a “positive and significant impact” from the monetary policy loosening that took place between the end of 2007 until 2014, a study by BOE staff including Chief Economist Andy Haldane found. The assessment is relative to an alternative scenario in which policy makers did nothing in response to the financial crisis.

Although overall wellbeing fell after the crisis, policy mitigated that slump, mostly through non-financial channels rather than income and wealth effects. Lower unemployment and financial distress than would otherwise have been the case accounted for 80% of the benefit, while rises in household income made up most of the rest.

Despite concern during those years that BOE actions were increasing inequality and potentially benefiting older people by inflating asset prices, the study concluded that younger households with less secure jobs experienced the gains. Older households dependent on savings were more likely to have been made worse off, although the economists said there were relatively few of them and the scale of their losses was generally small.

Yet those who did gain were unlikely to have thanked the central bank due to a lack of understanding of monetary policy’s impact, the report found. It also said that the study’s focus on the crisis meant findings would not necessarily be replicated during the conventional business cycle. The method could help those assessing the welfare implications of actions taken during the Covid-19 pandemic though.

©2020 Bloomberg L.P.

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