Population aging has emerged as a key demographic factor that structurally constrains the effectiveness and transmission channels of monetary policy. This study empirically examines the impact of the real policy interest rate and the aging population ratio on regional output (GRDP) using panel data from 16 metropolitan and provincial areas in South Korea between 2001 and 2019.
Employing an Autoregressive Distributed Lag Error Correction Model (ARDL-ECM) with a Pooled Mean Group (PMG) estimator, we incorporate an interaction term between the real interest rate and the aging ratio to quantify the heterogeneous effects of monetary policy and regional disparities. The results show that an increase in the real interest rate generally reduces regional output, as predicted by conventional theory. However, this negative effect diminishes or even reverses once the aging rate surpasses a certain threshold. Specifically, the turning point occurs when the aging ratio exceeds approximately 18.3% in provincial areas and 9.57% in metropolitan areas. These findings suggest that population aging alters the transmission mechanism of monetary policy and serves as a structural constraint on its effectiveness. Moreover, metropolitan areas were found to surpass the threshold earlier than provincial regions, indicating an earlier arrival at the turning point of monetary policy effectiveness. This can be attributed to demographic shifts such as urban concentration, youth outmigration, and declining birth rates. This study provides policy and theoretical implications by emphasizing the need for tailored monetary policy design that reflects the degree of aging and regional heterogeneity.