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The Impact of Domestic Monetary Policy and External Liquidity Shocks on Inequality in the Republic of Korea

Author

Listed:
  • Dong Jin, Lee

    (Sangmyung University, Seoul, Republic of Korea)

  • Joon-Ho, Hahm

    (Yonsei University, Seoul, Republic of Korea)

  • Cyn-Young, Park

    (SEACEN Center, Kuala Lumpur, Malaysia)

Abstract

This paper investigates the relationship between monetary policy and economic inequalities in the Republic of Korea. We consider both domestic and external monetary conditions in the analysis, allowing us to examine their varied impacts on income and wealth inequalities. Using data from the Household Income and Expenditure Survey and the Korean Labor and Income Panel Study, we find that an expansionary domestic monetary policy shock tends to reduce income inequality, while its effect on net wealth inequality is negligible. Conversely, an expansionary external liquidity shock, as indicated by unanticipated net capital inflows, tends to reduce income inequality but exacerbates net asset inequality. These findings suggest that both domestic monetary policy and external liquidity shocks affect economic inequalities, but through different channels.

Suggested Citation

  • Dong Jin, Lee & Joon-Ho, Hahm & Cyn-Young, Park, 2025. "The Impact of Domestic Monetary Policy and External Liquidity Shocks on Inequality in the Republic of Korea," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 40(2), pages 391-418.
    • Handle: RePEc:ris:integr:0949
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    More about this item

    Keywords

    Income Inequality; External Liquidity Shock; Monetary Policy; Sign Restricted VAR; Wealth Inequality;
    All these keywords.

    JEL classification:

    • D30 - Microeconomics - - Distribution - - - General
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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