Author: Ki-Ho Kim(Bank of Korea)
Understanding the relationships between output, unemployment, and price level has been one of most central interests to policy makers. There are many analysis on the relationships among 3 variables at the national level, however, the analysis at the regional level is relatively rare, especially in Korea. This paper investigates the relationships among 3 variables via GVAR model with Bayesian cointegration estimation.
The impulse response analysis on 6 Korean broad regions shows; First, the responses of GRDPs of 6 regions to GRDPs shocks are all significant and the response of GRDP of region which originated GRDP shock is the largest among responses of GRDPs of regions. Second, the responses of employment rates of 6 regions to regional employment shocks are not significant in all regions. Third the responses of GRDPs of 6 regions to regional employment shocks are positive in all regions.
These results implies that policies to boost employments should focus on stimulating labor market directly rather on stimulating output market.