The Effects of Monetary Policy on Employment-Focus on Manufacturing in Korea

Abstract

Background/Objectives: This study analyzes the effect on employment of the manufacturing industry through the exchange rate as a ripple path on the monetary policy.

Methods/Statistical Analysis: For the research purpose, the data were classified into 24 manufacturing industries based on the yearly data from 1996 to 2016, and the results were analyzed. First the policy rate and the Taylor Rule interest rate were set as dependent variables, and the manufacturing sector was divided into domestic and export companies. After adjusting the variables, we looked at employment effects.

Findings: As a result, the rise on both the central bank’s policy interest rate and the Taylor Rule interest rate has a negative effect on employment, and the relative size of the coefficient estimates only show a higher resilience than the policy rate of Taylor Rule interest rate. The results of the analysis in the manufacturing sector as export and domestic industry are also similar. However, the effect of monetary policy may be different depending on the economic situation, which should be lead to a more sophisticated analysis.

Improvements/Applications: Furthermore, it is expected that the role of fiscal policy as well as a monetary policy of the central bank for stable economic policy will be necessary.

Keywords: Exchange Rate, Employment, Interest Rates, Manufacturing, Monetary Policy