Limited Financial Market Participations and Shocks in Business Cycles in Korea

Yongseung Jung ()
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Yongseung Jung: Kyung Hee University

East Asian Economic Review, 2024, vol. 28, issue 2, 245-273

Abstract: This paper sets up a small open new Keynesian economy model with constrained households and incomplete markets to address the driving forces of business cycles in Korea. It shows that there exists a substantial fraction of constrained households who cannot have access to financial market. Furthermore, the estimated model reveals that a TANK model is better than a RANK model in explaining business cycles in Korea. The effect of domestic productivity shock on Korean economy has dominated in the variations of output, while the contribution of the foreign productivity shock to the variations of output and inflation has increased after the Asian financial crisis. The monetary policy shock has dominated the variation of inflation at short and medium horizons.

Keywords: Business Cycles; HtM; Korea; Maximum Likelihood Estimation; TANK (search for similar items in EconPapers)
JEL-codes: E32 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:ris:eaerev:0436

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