Essays on financial development, income inequality and monetary policy : Evidence from regional-level in Thailand

Abstract

The purpose of this study can be classified into three objectives. First, the relationship between country risk, financial development, and income inequality in Thailand, Indonesia, Malaysia, and the Philippines is examined using the World Inequality database from 1984 to 2022, alongside a regional analysis for Thailand. Empirical results from each country model reveal a link between financial development and a decline in income inequality in Thailand and the Philippines. In the case of Malaysia, financial development appears to exacerbate income inequality in certain periods. However, the relationship between political risk and income inequality is inconclusive. For the regional model, financial development and regional economic growth are significant and aligned with the country-level model. Second, this study explores how monetary policy may influence regional income inequality in Thailand via various transmission channels, based on data from 2011 to 2022. The results confirm the linkage between monetary policy and regional income inequality through aggregate income channels, housing price channels, and interest rate channels. These transmission mechanisms indicate that an accommodative monetary policy may help reduce disparities in regional income levels. The housing price channel shows a negative association with inequality, potentially reflecting improved access to credit via higher collateral values. In addition, Bangkok and the metropolitan exhibit greater responsiveness to monetary policy shifts compared to other regions. Third, this study investigates how monetary policy, operating through the indebtedness channel, influences household consumption across various income segments in Thailand. Additionally, we analyze the effectiveness of monetary policy in reducing disparities in income distribution. Our analysis is based on data derived from the biennial Household Socio-Economic Survey of Thailand, covering the years 2015 to 2021. The results from FGLS indicate that households with middle-income exhibit a stronger respond to monetary policy changes than other groups. In contrast, previous household debt does not significantly impact the consumption of lower-income and high-income households, suggesting that these groups of households are inelastic to changes in monetary policy. Increasing income inequality hampers the transmission of monetary policy to household consumption across all income levels. These findings offer guidance for policymakers at national and regional levels in understanding the link between financial development, monetary policy, and income inequality, particularly regarding the reduced effectiveness of monetary policy under high-income inequality.