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

Lee Dong Jin (), Hahm Joon-Ho () and Park Cyn-Young ()
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Lee Dong Jin: Sangmyung University, Seoul, Republic of Korea, Postal: Associate Professor, Faculty of Economics and Finance, Sangmyung University, 03016, 20, Hongjimun 2-gil, Jongno-gu, Seoul, Republic of Korea.
Hahm Joon-Ho: Yonsei University, Seoul, Republic of Korea, Postal: Professor, Graduate School of International Studies, Yonsei University, 03722, 50, Yonsei-ro, Seodaemun-gu, Seoul, Republic of Korea.
Park Cyn-Young: SEACEN Center, Kuala Lumpur, Malaysia, Postal: Executive Director, SEACEN Center, Sasana Kijang Bank Negara Malaysia, 2 Jalan Dato’ Onn, 50480, Kuala Lumpur, Malaysia.

Journal of Economic Integration, 2025, vol. 40, issue 2, 391-418

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.

Keywords: Income Inequality; External Liquidity Shock; Monetary Policy; Sign Restricted VAR; Wealth Inequality (search for similar items in EconPapers)
JEL-codes: D30 D63 E52 E58 F42 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0949

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