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Monetary Policy Towards Inclusive Growth: The Case of Korea

Author

Listed:
  • Dongkoo Chang
  • Jami'ah Jaffar

    (South East Asian Central Banks (SEACEN) Research and Training Centre)

Abstract

This paper investigates the impact of interest rate policy on employment using Korean data (1982.1/4-2012.4/4). Based on the analyses of impulse response functions, it was found that interest rate policy has a bigger impact on the cyclical component of employment than on total employment. The shrinking effect of employment by a hike in interest rate is estimated to be larger in contrast to the expanding effect of employment as a result of declining interest rate. Interestingly, most of the effect of interest rate on employment is realized through wage workers and manufacturing sector employment rather than nonwage workers or service sector employment. In this regard, in order to expand total employment and keep it at a desire level, to enable inclusive growth, it is essential to reduce the volatility of the policy rate and maintain interest rate at a long-term neutral level for a prolonged period and to reduce exchange rate volatility created by changes in interest rate. In particular, it is necessary to ensure that exchange rate does not appreciate too much, so as to avoid over-shooting of the exchange rate in order to reduce the volatility of manufacturing sector employment when interest rates are on the rise.

Suggested Citation

  • Dongkoo Chang & Jami'ah Jaffar, 2014. "Monetary Policy Towards Inclusive Growth: The Case of Korea," Working Papers wp05, South East Asian Central Banks (SEACEN) Research and Training Centre.
    • Handle: RePEc:sea:wpaper:wp05
    as

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    File URL: https://www.seacen.org/publications/RePEc/702004-100345-PDF.pdf
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    References listed on IDEAS

    as
    1. Zhuang, Juzhong & Kanbur, Ravi & Rhee, Changyong, 2014. "Rising Inequality in Asia and Policy Implications," ADBI Working Papers 463, Asian Development Bank Institute.
    2. Roger Williams, 2004. "Monetary policy and unemployment: A disaggregated analysis," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 10(3), pages 180-190, October.
    3. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    4. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    5. Karras, Georgios, 1996. "Why are the effects of money-supply shocks asymmetric? Convex aggregate supply or "pushing on a string"?," Journal of Macroeconomics, Elsevier, vol. 18(4), pages 605-619.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Olatunji A. Shobande & Oladimeji T. Shodipe & Simplice A. Asongu, 2019. "Global Shocks Alert and Monetary Policy Responses," Working Papers of the African Governance and Development Institute. 19/066, African Governance and Development Institute..
    2. Ahiadorme, Johnson Worlanyo, 2022. "Monetary policy in search of macroeconomic stability and inclusive growth," Research in Economics, Elsevier, vol. 76(4), pages 308-324.

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    More about this item

    Keywords

    Interest Rate Policy; Employment; Policy Rate; Transmission Mechanism; VAR Model; Impulse Response Function;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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