MONETARY POLICY AND WEALTH INEQUALITY: EVIDENCE FROM CHINA

Given the scarce empirical evidence on the distributional consequence of monetary policy, this paper draws on detailed data at microlevel to investigate the impact of China's monetary policy on households' wealth and wealth distribution using information from the China Family Panel Studies (CFPS) during 2012-2018. Our results confirm the following: (1) Household wealth is affected more by real interest rate adjustments than unexpected inflation and there are heterogeneities across the wealth level; (2) The impacts of monetary policy loosening and tightening cycles on household wealth are not neutral. During 2012-2018, while monetary easing had an equalizing effect, the unexpected inflation channel had a dis-equalizing effect; (3) Financial development amplifies the wealth effect of monetary policy adjustments. Our findings have important implications on the conduct of central bank policies.