The Deputy Governor of the BCRA, Vladimir Werning, presented “Distributional Effects of Monetary Policy: Evidence of Large Benefits from Argentina's Stabilization Program” at the Meeting of BIS Emerging Market Deputy Governors on March 17. The event took place in Basel.
AGENDA
I.| In a stabilization program monetary policy works alongside fiscal & FX policies to effectively eliminate excess money
II.| The initial monetary policy strategy is unconventional: lowering interest rates & transferring BCRA liabilities to Treasury
– Monetary policy ended endogenous money supply (flow imbalance) & reduced monetary overhang (stock imbalance).
– Treasury's warehousing of residual liquidity allows the path of re-monetization to be demand-driven.
– Monetary policy efforts delivered very rapid disinflation in 2024 and are anchoring inflation expectations in 2025.
III. | Distributional effects of a rapid transition to lower inflation have been meaningful, widespread and beneficial
– Income channel: decline in inflation-tax collected by government & banks is a benefit for households & corporates.
– Consumption channel: poverty is declining sharply as low-income households benefit more from falling inflation.
– Credit channel: deregulation & convergence of inflation expectations boost credit to private sector.
– Wealth channel: price stability alongside fiscal austerity boosts asset prices (stocks & bonds).
IV. | Effects of monetary stabilization are intertwined with effects of government mandated relative price adjustments
– Lowering barriers to imports (tariff and non-tariff) transfers income from importers/producers to consumers.
– Regulated price adjustments (utility prices), and de-regulated price adjustments (rents) create market-based transfers.
– Reduced multiple currency dispersion transfers resources from importers to exporters & consumers.
