The Differential Regional Effects of Monetary Policy: The Korea Case (in Korean)

Monetary policy effects are generally perceived to be similar across regions within a country. For this reason monetary authorities have not taken into consideration region-specific information when conducting analyses on policy effects and policy-related decisions. There have been studies on monetary policies and their differential effects on local regions in large areas facilitating great diversity as the U.S. or the EU. One of the main results shows that U.S. monetary policy has differential regional effects across regions and so does EU monetary policy on its member states. For the possibility of regional differences in monetary policy effects since the local self-goverment system was launched in Korea in 1995, it seems necessary to analyze the effects of monetary policy on the real economy across the local regions. In this paper, we empirically analyze the differential regional impacts of monetary policy on 16 local governments in Korea and examine the factors that have caused such differences. The result from the impulse response analysis of GRDP shows that monetary policy itself has significant effects across the country and that its short-term effect differs across regions. Also, there are significant cross-regional differences in the short run; however, such differences disappear over time. Notably, the regional differences in short-term monetary effects are attributable to the share of interest-sensitive industries, that of small- and medium-sized firms, and interregional linkages.