Asymmetric transmission of monetary policy on economic growth and the labor market in Peru: evidence from the VAR model, 2004-2023

Abstract

The transmission of the monetary policy instruments of the Central Reserve Bank of Peru (BCRP) on economic growth and the labor market was analyzed for the period from the first quarter of 2004 to the fourth quarter of 2023. Unlike previous studies conducted for the Peruvian context, which generally address these effects separately through ordinary least squares specifications, this paper adopted a unified and dynamic approach through the estimation of Vector Autoregressive (VAR) models. The results reveal an important methodological asymmetry: while the reference interest rate and money supply act consistently with conventional theory regarding output, their effects on the labor market exhibit counterintuitive patterns that the national literature had not previously documented. It was found that an increase in the reference interest rate reduces GDP growth by 0.4% in the short run, whereas an increase in the money supply raises it by 0.9%. However, an increase in the money supply increases the unemployment rate by 30.3% in the second quarter, contradicting the standard formulation of the Phillips curve. These findings suggest the presence of frictions in the monetary transmission channels to employment, with direct implications for the coordination between monetary policy and labor market policies in Peru.