This paper empirically investigates the wealth effects of monetary policy on
household consumption in Korea, across the different asset categories and
income groups, using micro data. It is found that the wealth effect, i.e. the
effect of the Korean central bank base rate on private consumption through
changes in asset prices, increases with the amounts of assets held by the
households concerned, and is especially notable in the case of the
high-income group. It is also shown that households consider real interest
rates as more crucial than nominal rates when making their consumption
decisions and that the changes in the base rate affect private consumption
through expenditures on durable goods rather than non-durable goods. Based
on these results, the policy rate cuts (hikes) in Korea are appraised as having
contributed to some extent to increases (declines) in private consumption,
especially by the high and middle income groups. Meanwhile, it is estimated
that these base rate adjustments have had relatively a small impact on
consumption by the low-income groups.