Gender and Age Group Differences in Employment Responses to Monetary Policy Shocks (in Korean)

Most previous empirical studies on the effects of monetary policy on employment fail to take care of the "price puzzle," concluding that the estimated response of inflation is positive to the contractionary monetary policy shock. This paper aims to resolve this problem by using a factor augmented vector autoregressive (FAVAR) model suggested by Bernanke et al. (2005). Additionally, a small-open economy structure is imposed on the FAVAR model to separately identify the domestic and foreign interest rate shocks. The results suggest that a raise in the key rate by the Bank of Korea decreases the employment-to-population ratio (EPR) of young male workers while other worker groups do not respond in a similar fashion. This implies that a labor demand channel of monetary policy works only in the young male workers market. This finding is also in concord with the fact that young workers confront a relatively high unemployment rate compared to other population groups since a larger reserve labor force means a bigger sensitivity to a change in labor demand change.