Price Stickiness, Input–Output Linkages, and Monetary Policy Transmission in Korea

Lee Seungyoon ()
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Lee Seungyoon: Department of Economics, 26720 Gyeongsang National University , 501, Jinju-daero, Jinju, 52828, Republic of Korea

The B.E. Journal of Macroeconomics, 2025, vol. 25, issue 2, 885-915

Abstract: This study investigates the industry effects of monetary policy in Korea by analyzing the role of sectoral heterogeneity regarding price stickiness and inter-industry relations. I extend a standard sticky-price Dynamic Stochastic General Equilibrium (DSGE) model into a model with heterogeneous production sectors, where each industry sector is allowed to have distinct price stickiness and inter-industry production linkages. Input–Output matrices are utilized to construct the inter-industry linkages, which reflect the use of final products from other sectors as material inputs or investment goods. Sectoral price stickiness and other model parameters are estimated using a Bayesian approach. From the estimated model, the asymmetric impact of monetary policy across sectors is investigated. Simulated impulse responses suggest that sectoral variables exhibit clear comovements in response to monetary policy shocks while the magnitudes of the responses differ considerably across sectors, which can be attributed to the differences in price rigidities and production linkages. Compared to the results from a standard single-sector model, the output response is more pronounced, while the inflation response diminishes. The results indicate that ignoring sectoral heterogeneities could bias estimates of monetary policy effects.

Keywords: monetary policy transmission; multisector DSGE model; sticky-price model; Bayesian estimation (search for similar items in EconPapers)
JEL-codes: E31 E32 E52 E58 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1515/bejm-2024-0172

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