The Distributional Impact of Monetary Policy in SEACEN Economies

Maria Teresa Punzi

in Research Studies from South East Asian Central Banks (SEACEN) Research and Training Centre

Abstract: During the last 25 years, many advanced economies (AD) as well as several emerging economies (EME), have adopted inflation targeting to control the general rise in the price level, as price stability has been found to be a prerequisite for sustained economic growth as well as full employment. As global inflation rates have been quite low and stable, the distributional impact of income had not garnered much interest. However, new frontiers in research have shown that there could be a strong impact of monetary policy on rising asset prices, contributing to increasing income and wealth of households belonging to the top percentile of income distribution. Thus, the issue of the distributional impact of monetary policy has once again become an important topic to investigate. While several studies have been conducted for advanced economies, the distributional impact of monetary policy on emerging Asian economies is largely unexplored. Thus, this research project aims at investigating how monetary policy contributes to the income and wealth distribution of eight SEACEN economies (SEACEN-8): Cambodia, India, Mongolia, Philippines, Sri Lanka, Chinese Taipei, Thailand and Vietnam. The findings are summarized as follows: � the study reveals that an expansionary monetary policy leads to a lower Gini Index, thus favoring lower income inequality for the SEACEN-8; � the distributional impact of monetary policy works mainly through the asset price channel with the Gini Index decreasing or increasing following lower or higher housing prices; � the inflation channel is found to be also very important: an expansionary monetary policy tends to decrease the Gini Index during periods when the inflation rate is larger than 2 percent, otherwise it tends to increase for lower inflation; � during periods of ultra-low interest rates and low inflation, a positive supply shock has limited effects on the GDP as well as limited

Date: 2020
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