Monetary Policy and Household Income Distribution: An Empirical Analysis from Cambodia

Kosal Nith
Future Forum · Apr 2022

Abstract

This paper investigates to estimate the distributional effects of monetary policy shocks on macroeconomic aggregates and aggregate consumption. An earning heterogeneity channel, a Fisher channel and an interest rate exposure channel were applied as transmission channels affect aggregate spending when households have different average propensities of consume. Through the Structural VAR model, I find that monetary policy shock pursuant to the exchange rate has positive consequences on inflation, real output and the unemployment rate. Simultaneously, sufficient statistics from Cambodian cross-sectional data in the time period 2014–2020 suggests that all three channels are likely to amplify the effects of monetary policy. Furthermore, I discover that the increase in inequality of household consumption and liabilities over the past 7 years, while decreasing household income and assets inequality over the same period.

Keywords: Monetary Policy; Income Distribution; Structural VAR; Inequality; Cambodia