The Regional Impact of Monetary Policy on the Employment of Iran's Industrial Provinces: The Structural Factor-Augmented Vector Autoregressive Method (SFAVAR)

The importance of monetary policy as one of the most important demand-side policies has led to a discussion of the growth of the volume of money and its impact on various economic sectors, which has always been one of the most challenging topics in macroeconomic literature. While Monetary Policy is usually performed at a national level, its impact may depend on the properties of regions. Therefore, this research tries to answer the question: Is the Impact of Monetary Policy on the Employment of the Provinces (Iran's Industrial Provinces) is homogenous? For this purpose, using the SFAVAR method the relation between money supply and the Employment of ten Iranian Industrial Provinces in the period 2005:1-2016:4 is studied. The provinces studied were selected based on the share of value added of the industry sector of each province to the total value added of the country's industry. The results reveal the impact of monetary policy on regional employment is small and is limited to short-run. Furthermore, the response of employment to liquidity shock in various provinces is different. Overall, the results show monetary policy cannot be an effective policy to create regional employment; because its effect is slight and short-lived. Therefore, to maintain the stability of the regional economy and to prevent inflation in the provinces of the country, liquidity must be controlled.