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The Regional Effects of Interest Rate Change: Multiregional CGE Model Approach

JEONG KIHO 1,  Kim, Jae-hyun 2

1경북대학교
2DGB경제연구소

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ABSTRACT

This study analyzes the regional economic effects of changes in interest rates. Since the regional differences of economic structure are relatively large in Korea, the effects may be not the same over regions. A multi-regional CGE model is used for the analysis. The multi-region SAM is constructed using the 2005 regional input-output table and the regional data. In the scenario analysis of 10% increase of the call rate, it is found that production goes down in most regions, except for Gyunggi, Daegu, Gyeongnam which are unaffected and for Incheon in which production increases. The relative prices decline in major industry sectors in most regions, while the relative price of real estate increases in all regions, primary metal products’ either increases or is unaffected depending on regions and the relative prices of the major industry sectors except for the construction sector’s increase in Chonnam. The reason of the regionally different ripple effects on production and relative price of the rise in interest rates seems due to different capital-intensity among regions. It is shown that the larger the capital intensity is in a industry sector or and a region, the larger decrease of production the sector or the region has.

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