The Korean Journal of Economic Studies
An Empirical Study on the Wealth Effect of Monetary Policy in Korea
Sung Keun Ha (Yonsei University)Year 2016Vol. 64No. 1
AbstractThis paper empirically investigates the wealth effects of monetary policy onhousehold consumption in Korea, across the different asset categories andincome groups, using micro data. It is found that the wealth effect, i.e. theeffect of the Korean central bank base rate on private consumption throughchanges in asset prices, increases with the amounts of assets held by thehouseholds concerned, and is especially notable in the case of thehigh-income group. It is also shown that households consider real interestrates as more crucial than nominal rates when making their consumptiondecisions and that the changes in the base rate affect private consumptionthrough expenditures on durable goods rather than non-durable goods. Basedon these results, the policy rate cuts (hikes) in Korea are appraised as havingcontributed to some extent to increases (declines) in private consumption,especially by the high and middle income groups. Meanwhile, it is estimatedthat these base rate adjustments have had relatively a small impact onconsumption by the low-income groups.