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CHRONIC. If a rise in interest rates increases capital, it also causes a decrease in wealth. A paradox accentuated by inflation.
By Patrick Artus*
Published on
On pays too little attention to the redistributive effects of monetary policies. To illustrate our point, we will take here the example of restrictive monetary policies, given the current situation. These redistributive effects involve interest payments on various debts, wealth effects, and the interaction between inflation and interest rates.
A rise in interest rates first has the effect of increasing the income of creditor households and increasing the interest payments of all debtor economic agents, households, companies and the State. States, companies and young households being mainly debtors, elderly or wealthy households being mainly creditors, the rise in interest rates increases income inequalities.
Capital income…
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