Inspecting Driving Forces of Business Cycles in Korea

Yongseung Jung ()
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Yongseung Jung: Kyung Hee University

East Asian Economic Review, 2019, vol. 23, issue 4, 409-427

Abstract: This paper sets up a new Keynesian model with external habit to explore the role of each shock over business cycles in Korea. The estimated model via maximum likelihood shows that the productivity shock plays a pivotal role in explaining the output variations before and after the financial crisis since mid-1970s. It also shows that the model with external habit is more successful in explaining the business cycles in Korea after the Asian financial crisis than the model without habit. The monetary policy shock which dominates by accounting for more than 70 percent of the unconditional variance of the inflation rate before the financial crisis is less important in the inflation rate fluctuations after the financial crisis. This partly reflects the regime change of the monetary policy to the inflation targeting rule after the financial crisis.

Keywords: Business Cycles; Maximum Likelihood Estimation; Sticky Price; Habit; Korea (search for similar items in EconPapers)
JEL-codes: E21 E32 E52 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:ris:eaerev:0369

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