# Monetary policy effect on income and wealth inequality mechanism

## TL;DR

This study examines how expansionary monetary policy in China affects income and wealth inequality, finding that it benefits wealthier households more, thus increasing the wealth gap.

## Contribution

The study provides new empirical evidence on how monetary policy impacts wealth inequality, particularly in developing countries like China.

## Key findings

- Expansionary monetary policy significantly increases overall income and wealth levels.
- Wealthier households benefit more from such policies, widening the wealth gap.
- The real estate market boom amplifies the effect of monetary policy on wealth inequality.

## Abstract

Since the 1990s, global income and wealth inequality has increased significantly, especially in developing countries, where the imbalance in wealth distribution has become increasingly prominent. This study seeks to thoroughly investigate the effects of expansionary monetary policy on income and wealth inequality, using China as a case study and employing extensive household survey microdata for empirical analysis. The findings indicate that expansionary monetary policy has significantly enhanced overall income and wealth levels. However, when considering the extent of wealth growth, it appears that affluent households have benefited more than their low- and middle-income counterparts, thereby widening the wealth gap. In addition, the real estate market boom played an amplifying role in this process, further deepening the impact of monetary policy on wealth inequality. The findings of this paper provide an important empirical basis for understanding the complex relationship between monetary policy and socio-economic inequality, and provide practical references for policymakers to consider the fairness of income and wealth distribution when formulating relevant monetary policies.