Title : The Effects of Monetary Policy Shocks on Inflation Heterogeneity: The Case of Korea

Author :Seolwoong Hwang(Bank of Korea)

This paper analyzes the heterogeneous inflation responses by income group to monetary policy shocks. It constructs consumer price indices for different income quintiles using data from the Household Income and Expenditure Survey in South Korea and estimates inflation responses to monetary policy shocks through a local projection method. The estimation results reveal that the price index for high-income groups exhibits a higher sensitivity to monetary policy shocks compared to low-income groups. This is attributed to the high income elasticity of luxury goods, which constitute a significant portion of consumption among high-income households. Luxury goods are typically price rigid, but it has been observed that demand for luxury goods can be significantly responsive to income changes caused by monetary policy shocks, potentially amplifying price volatility. This indicates that monetary policy can generate redistributive effects not only in terms of income or assets but also from a price perspective.