Heterogeneous regional effects of monetary policy: Evidence from Korea

Using regional panel data from Korea, this paper investigates the differential impact of monetary policy on output, consumption, and employment by region. Depending upon distinctive regional characteristics, the effects of monetary policy are heterogeneous across regions. Specifically, regions with a lower share of manufacturing, a lower income level, a higher proportion of the elderly population, and a higher household debt ratio exhibit more pronounced responses in output, consumption, and employment to monetary policy shocks. Further, we show that the share of net exports, the share of small businesses, and the share of non-wage workers are pivotal factors that drive the primary results. These findings imply that vulnerable regions may experience a stronger impact from recent rapid interest rate hikes, underscoring the importance of supplementary fiscal support for the regions.