We are pleased to announce two recent publications co-authored by the Centre’s Executive Director, Dr Cynyoung Park.
Would a Fed policy affect income and wealth inequality in emerging market economies? If so, how?
In this paper, the authors investigate the relationship between monetary policy and economic inequalities in the Republic of Korea. Using data from the Household Income and Expenditure Survey and the Korean Labor and Income Panel Study, the authors find that an expansionary domestic monetary policy shock tends to reduce income inequality, although its effect on net wealth inequality is negligible. Conversely, an expansionary external liquidity shock, as indicated by unanticipated net capital inflows, will likely reduce income inequality but exacerbate net asset inequality. The study findings suggest net capital inflows driven by foreign monetary policy easing could aggravate wealth inequality in emerging market economies by inflating asset prices. Click here to read the full paper.
Will local currency bond market development reduce UIP premium in emerging market economies? Does this imply that local currency bond market may mitigate the risk of a currency crisis? This study examines how the growth of local currency bond markets (LCBMs) affects the uncovered interest parity (UIP) condition. Analyzing data from January 1996 to April 2022, the authors find a reduction in UIP deviations with the growth of LCBMs in emerging market economies. While the dynamics of UIP premiums in emerging market economies has conformed to the patterns of advanced economies, large LCBMs seem to increase capital flow sensitivity to UIP premiums. The study findings are also consistent with the ‘original sin redux’ in both advanced and emerging economies. That is, gross portfolio debt inflows increase (decrease) when the exchange rate appreciates (depreciates). However, large LCBMs may exacerbate the effect of currency depreciation in emerging market economies during capital outflows, unlike in advanced economies where large LCBMs can alleviate the adverse effects of the original sin redux. Click here to access the paper.
